Archive for June 19th, 2012

One of the most valuable commercial properties presently on the market in Dublin may be providing one of the most accurate insights into the true health of the market in 2012. St Martin’s House at the intersection of Waterloo Road, Upper Baggot Street and Pembroke Road in central Dublin has been on the market with an asking price of €37.5m. It is a 76,000 sq ft 1960s refurbished office/retail block plus 156 car-parking spaces. The property is multi-tenanted and presently taking in €3.6m per annum. So on the face of it, a yield of just under 10% is suggested by the asking price. Savills is marketing the property and sales details are here.

Sources say that contracts had been issued at €28m, suggesting a 12.7% yield but even at this rate of return, the sale appears to have fallen through. The schedule of tenancies in the sales brochure suggest office rents of €40psf which is probably €15 psf above current market levels. Leases expire between 2016-2027. There is a mix of office tenants that includes reportedly-NAMAed Spain Courtney Doyle, about whom the brochure notes “Spain Courtney Doyle is a private limited company and have not published latest accounts for a credit score to be available.” As reported on here in April 2012, Spain Courtney Doyle now appear to have a London address, and one of the founders Bernard Doyle declared bankruptcy in the UK last month.

The building is understood to be owned by Treasury Holdings which is in the wars with NAMA at present, though it is not clear if this building is associated with any NAMA lending. [CORRECTION: 19th June, 2012. The building is in fact now wholly owned by Friends First Managed Pension Fund Limited and managed on its behalf by F&C Reit]

Savills hasn’t commented at time of writing.

UPDATE: 19th June, 2012. For the avoidance of any doubt, the selling agents advise that the leases/tenancies are fully performing.

UPDATE: 9th January, 2013. Jack Fagan reports in the Irish Times today that the property has now been sold to two unidentified German businessman, introduced by Davy, who paid €22.5m for the 75,000 sq ft property comprising retail and office space. Jack says this represents an initial yield of 13.26% but if the rent is still €3.6m, then I make the €22.5m price equivalent to a yield of 16% exactly.


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Developer Thomas McFeely (or just plain “Tom McFeely”) looks set to become a locomotive generator of legal action on both sides of the Irish Sea. Last Friday in London’s High Court, an Irish creditor who had secured a judgment against Tom in Dublin succeeded in having Tom’s UK bankruptcy bid derailed – perhaps only temporarily, as it seems the UK bankruptcy authorities are reconsidering Tom’s bankruptcy bid in light of new information about his debts, and it seems Tom himself is complaining his human rights are being interfered with. There has been a number of separate legal cases – here and here – that have recently come to a head in theUK, where it seems Tom has been on the losing end.

And on this side of the Irish Sea, Tom has not left the headlines since he was accused of not being able to build a snowman last October 2011, not to mention a block of flats as evidenced by the farce and tragedy of the residents of Tom’s Priory Hall complex in north Dublin. NAMA has recently been pursuing possession in the Circuit Civil Court of Tom’s €10m home onDublin’s upmarketAilesbury Road, and the latest had been that the McFeelys were ordered to leave the house by the start of August 2012, on condition that they put buildings insurance in place.

Yesterday, NAMA made an application to Dublin’s High Court – reference number 2012/129 CA – against Tom and his wife, Nina. NAMA is represented by a fairly small firm of Dublin solicitors Whelan Murtagh, which I think is the first time this firm has been used by NAMA. And, as is usual with the processing of new applications by the Courts Service, there is no solicitor showing on record for the McFeelys.

We don’t have any details at this stage about the subject of the application, though it seems it may be related to a lower court case in the Circuit Court and it may well be associated with the possession order for the McFeely house onAilesbury Road. In the past, NAMA has taken action in the High Court against individuals to seek personal judgments and to enforce personal guarantees. But it should be emphasised, we do not know if that is the case here.

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In March of this year, a number of us Twitter folk including economists Karl Whelan and Brian Lucey, banking/economics analyst Lorcan Roche Kelly and the Irish Independent’s banking correspondent Laura Noonan made a €20 bet about the outcome of the Government’s ambition to defer the €3.06bn promissory note payment that fell due at the end of March. From recollection Karl, Brian as well as mise bet there would be no deferral and Laura and Lorcan bet that there would be. The winnings were all going to charity. Three months later and we’re all beginning to appreciate Paddy Power’s skill and experience with defining bets because we still can’t agree on exactly what was announced by Minister Noonan in March.

We know what immediately happened in the aftermath of the March announcement – the Government issued a new sovereign bond that matured in 2025, NAMA was directed to advance a loan for up to 90 days for  €3.1bn in cash to IBRC so as to satisfy the promissory note payment, Bank of Ireland was to hold an Extraordinary General Meeting (EGM) to approve a 2.35% per annum loan to IBRC for 12 months which would used to repay NAMA, the Bank of Ireland loan was to be secured on the 2025 government bond and the ECB was to lend Bank of Ireland €3bn for 12 months at 1%. The Irish government saved itself borrowing €3bn from the Troika at 3.5% per annum and is instead paying 2.35% on the funding which was used to satisfy the commitment to pay the promissory note. It is simple enough, though the number of steps involved make it look convoluted.

Yesterday Bank of Ireland held its EGM and approved the loan at 2.35% for 12 months secured on the collateral of the 2025 Irish government bond. We learned yesterday, via the Irish Independent, that BofI will be insuring its loan to IBRC and the cost of the insurance plus the 1% interest that BofI will pay to the ECB means that BofI will make no profit on the deal, not even the €35m previously reported. “The cost of insuring the bank against default risk would wipe out the profits on the deal, he [BofI CEO, Richie Boucher] said” reported the Independent.

But bottom line it appears that the Government is getting a loan of €3bn at 2.35% for 15 months – 3 months from NAMA and 12 months from BofI. The original plan was that the Government would have funded the promissory note payment due in March with a 3.5% loan from the Troika. So the Government has saved about €45m in interest over a 15 month period – that is 3.5% minus 2.35% applied to €3bn for 15 months. Yes, eye-brows have been raised that “independent” NAMA and BofI, in which we now only have a 15% minority shareholding, are agreeing to the arrangement – in BofI’s case without any profit, apparently. But NAMA says it provided the 3-month funding on arms-length commercial terms. And as for non-state controlled BofI, their decisions are their own business, even if they look curious. So €45m for the Government – a minor win, but a win nonetheless.

We still don’t know what is to happen in 12 months time when we need repay the loan to BofI, the hope had been thatIrelandwould be back in the traditional bond markets at sustainable interest rates, but from this perspective in June 2012, that looks like a forlorn hope, becoming more forlorn with each passing week. But presumably we can borrow the €3.5bn from the Troika at 3.5% next June 2013, if no other source is available. In which case, we are back to what was planned for March this year but have still saved €45m. Officially our deficit will be worse by €90m – according to the Department of Finance though their calculations look wonky – but that is because of the interest Ireland is paying on the 2025 sovereign to IBRC which we 100% own, and it isn’t a real cost to this State in the sense we own IBRC.

As for the charity bets, I would still maintain that the promissory note was unconditionally “satisfied” in March 2012 and that there was no deferral on the promissory note commitment. We deferred the source of planned funding – the 3.5% loan from the Troika – for at least 15 months. But we have substituted the source of funding with a sovereign bond which is more secure – in our creditors’ eyes –  than a promissory note.

Despite the minor win, there has been no appreciable progress in “re-engineering” the €30bn promissory notes that will be paid off over the next 13 years. There was talk of a “technical paper” which would outline options which would form the basis for canvassing the Troika, but as yet that “technical paper” has not been completed, according to An Taoiseach Enda Kenny in the Dail last week, despite its being mentioned as far back as January 2012. The Government appears keen to downplay any expectation of any imminent “deal” on the promissory notes, and the view on here is that there will be no deal, unless a collateral scrap falls from the Spanish or Greek table.

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Yesterday saw the publication of the May 2012 IPD Monthly Property Index for the UK. The IPD (Investment Property Database) index is the only UK commercial index referenced by NAMA’s Long Term Economic Value Regulations (Schedule 2) and is used to help calculate the performance of NAMA’s “key markets data” shown at the top of this page.

The Index shows that capital values fell by 0.5% in the month of May 2012 – the biggest monthly fall since at least November 2009 – and this follows monthly declines of 0.3% in each of April, March and February 2012 and preceding that, several months of almost flat performance. Prices reached a peak in the UK in June 2007 and fell steadily until August 2009 when a rally started. Prices then increased by 15% in the year to August 2010 but since then prices are up a measly 0.3% and in the last 12 months prices have actually decreased by 1.2%. Overall since NAMA’s Valuation Date of 30th November, 2009 prices have increased by 9.7%. Commercial prices in the UK are now 35.2% off their peak in June 2007. The NWL index  remains at 816 which means that NAMA needs to see a blended increase of 22.5% in property prices across its portfolio to break even at a gross profit level (taking into account the fact that subordinated bonds will not need be honoured if NAMA makes a loss).

The table below shows the change in value of an index set at 100 at 30th November, 2009 and applying the month-on-month % increases in a compound manner.

The overall outlook for the UK economy is muted in the short term with the country suffering a double dip recession after a shock- though modest – 0.2% contraction in GDP in Q1, 2012. The UK has a so-called Office for Budget Responsibility (OBR) which is independent of Government and produces its own economic forecasts and commentary on fiscal policy. The latest report from the OBR was published on 21st March, 2012 and it forecasts GDP growth from 2012-2015 at 0.8%, 2%, 2.7% and 3%, deficit of 8.3%,5.8%,5.9%,4.3%, debt:GDP of 72%,75%,76%,76%, unemployment rate of 8.7%, 8.6%, 8.0%, 7.2%, house prices of -0.4%,0.1%,2.5%,4.5% and inflation of 2.8%,1.9%,1.9%,2%.  S&P has confirmed the UK’s top Triple A credit rating with “stable outlook”. Both Fitch and Moody’s have put the UK on a negative credit watch

Monetary policy is overseen by the independent Bank of England and the  current Bank of England rate is 0.5% and has been since February 2009. And there might even be another round of quantitative easing that has so far seen almost GBP 300bn pumped into the GBP 1.5tn UK economy.

About half of NAMA’s portfolio was located in London which has so far performed very well from Aug 2009 to Dec 2010 but has been more subdued over the past year. Supply shortages and money chasing a relatively stable investment have maintained prices and there might even be a short term fillip from this years Olympics. Beyond London and the English south-east, there is evidence of prices waning amidst sluggish economic growth and stunted lending.

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