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Archive for June 23rd, 2012

Although the Minister for Justice, Equality and Defence Alan Shatter made a complete hames of the Upward Only Rent Review issue last year, the announcement in December 2011 of the abandonment of Government initiatives to deal with high legacy rents was accompanied by the launch of a NAMA initiative to help commercial tenants in difficulty.

During the week, the Minister for Finance Michael Noonan responded to a highly specific question from Dublin Central Independent TD Maureen O’Sullivan where Deputy Sullivan asked about a rent increase at a restaurant where the landlord is a NAMA debtor. Aside from dealing with the specific question, Minister Noonan gave us the snippet that NAMA has approved 145 out of 149 requests for rent abatements so far. The Minister did not provide a figure for rent abatement requests still being considered. The full exchange is here

Deputy Maureen O’Sullivan: if he can explain in relation to a business (details supplied|) the reason the National Asset Management Agency has requested a 100% increase in rent on top of the already €18,000 per annum rent of an external terrace only used 60 days maximum a year; the reason NAMA is requesting such an expense to be paid when Ireland is in a recession and restaurant turnover has declined by 30% since the economic boom with further decreases expected; the amount NAMA pays in consultancy fees to the original owner; and if he will make a statement on the matter.  [29902/12]

Minister for Finance, Michael Noonan: As the deputy is aware NAMA has acquired loans from the five participating institutions and is not the owner/operator of properties. The Agency’s role is that of a secured lender. Other than properties that have been enforced, all of which are listed on NAMA’s website and which are managed by the appointed receivers/administrators, properties continue to be managed by their existing owners or their professional managers/agents albeit NAMA takes a very close interest in their efficient management and sale with a view to maximum loan repayment in order to protect the position of the taxpayer.

NAMA’s primary concern is that properties securing its loans are professionally managed at the most economical cost to ensure that rental and occupancy is optimised towards the servicing of interest and capital repayment on related loans. The owners/professional managers are responsible for the efficient running of properties, the collection of rents and service charges, arrangements for letting of vacant units and the operation of rent reviews in accordance with the leases into which tenants have entered. As lender and holder of security on the asset, NAMA’s approval is needed for key decisions such as significant new leases, rental reductions or abatements and plans for ultimate sale of the property.

On the issue of rent abatements, as I have previously advised NAMA has published very clear Guidelines, available on http://www.nama.ie, for tenants seeking a rent reduction from a NAMA debtor or receiver. It is important to emphasise that applications for rent abatements may be made in situations where tenants of NAMA debtors can demonstrate that the rents payable under their current leases are in excess of current market levels and, as a result, that the viability of their businesses is threatened. In such circumstances, tenants may seek NAMA’s approval for rent reductions. The Guidance Note is not intended to provide benefits to tenants whose businesses are trading profitably and who are in a position to honour their current contractual arrangements on rent. By the end of May 2012, the Agency had approved 145 applications for rent reductions under these Guidelines with just 4 applications refused.

NAMA is prohibited by Sections 99 and 202 of the NAMA Act and the normal rules of banking confidentiality from commenting on individual debtors or arrangements between tenants and landlords who may be borrowers from NAMA but NAMA assures me that in its role as lender/security holder it responds promptly and pragmatically to requests from its borrowers regarding lease arrangements including rent abatements on their properties where there is a justifiable case.

NAMA does not pay consultancy fees to debtors. As previously advised to the House it is the Agency’s practice to allow debtor companies to retain overhead costs from rental or other income that are produced by their assets where this is necessary for the operations of the debtor companies. The level of overhead is only agreed following a thorough and rigorous evaluation of the debtor’s business plan by NAMA. Each cost element is reduced to the minimum and NAMA advised that the level of overhead sanctioned by NAMA typically represents a very significant reduction on the level which prevailed prior to NAMA acquisition of the loans: typically, reductions of 50% to 75% in overhead costs have been imposed by NAMA.”

NAMA is not offering a free lunch to commercial tenants, and tenants need demonstrate (a) their existing rent is above current open market rents and (b) the existing rent is threatening the viability of the business. Non-NAMA tenants may feel aggrieved by the reputed intransigence of some non-NAMA landlords to reduce rents, especially in cases where tenants may be paying 100% more than the current market rents under old Upward Only Rent Review leases, that is, commercial rents in Ireland have fallen by 50% from peak. Amazingly, the cost of the NAMA initiative, despite previous warnings of multi-billion euro reduction in asset values, is ….. nil.

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There seems to have been a relaxation in the intensity of NAMA’s foreclosure activity in recent weeks, ahead of the judicial review of its dealings with Treasury Holdings’ loans which is set to kick off at Dublin’s High Court on 3rd July, 2012. The judicial review seems to be quite wide-ranging and challenges the very core of NAMA’s operations. If it is successful – and the betting is that it won’t be, but you never know with the Irish judicial system – then it will have a fundamental impact on NAMA’s activities including past enforcement actions. Meanwhile, there is still a drip-drip of enforcement action.

According to yesterday’s edition of Iris Oifigiuil, NAMA has had receivers appointed to Wexford-based Ellen Construction Limited. Declan Taite and Anne O’Dwyer, both of RSM FGS Partnership were appointed joint statutory receivers on 14th June, 2012. Ellen Construction was controlled by brothers Michael Doran and Martin Doran, and Carmel Doran and is the company behind Bewley’s hotels at Dublin Airport and Leopardstown, a holiday home scheme in Wexford, and apartment complex developments in Dublin including Island Key apartment complex.It has been in  financial trouble for some time, and the company was already in receivership and liquidation, so the appointment of NAMA’s receivers merely better protects NAMA’s interests.

Remember you can see a comprehensive list of Irish foreclosure action by NAMA here and in this regularly updated spreadsheet.

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Chart of the Week

 

The ESRI published a special report this week on the Irish residential property market, which sparked all sorts of reporting of imminent price surges. Others might have been more impressed at the real – that is, excluding inflation – price trend of Irish property which shows that real prices have collapsed since the 2007 boom, but are still considerably up on values recorded in the 20 years from 1978-1998.

Table of the Week

ESRI forecast

E&Y forecast

My perception from experience of both the ESRI and E&Y and their respective economic forecasting is that both tend to be outliers, the ESRI optimistic and E&Y pessimistic. Both produced economic forecasts this week. If the actual outturn is between both forecasts, we will still be in for trouble, because at present the ESRI is closely matching the Government’s own forecasts.

Quote of the Week

 

“A parliament should never run to the tune set by print or news bulletin deadlines. To do so would leave the Dáil open to accusations of populism. The editorial then goes on to declare that ‘since becoming Ceann Comhairle 16 months ago Sean Barrett has attracted most public attention for his efforts to impose a Dáil dress code’. If you had replaced the word ‘public’ with ‘media’, then this would, in fact, be an accurate comment. Yes, the media has given disproportionate attention to what is just one of the many steps for improvement that the Ceann Comhairle has highlighted since his appointment… At the very least, the editorial of one of our most popular daily newspapers should have a better grasp of the role of the Ceann Comhairle and the rules of our parliament before it chooses to offer advice in such knowing tones. Finally, I honestly cannot think of a single member of the Dáil who does not agree that the Dáil must become more relevant, but they also know it is a little more complicated than you suggested in your editorial last Friday” Mark Mulqueen, the Head of Communications for the Houses of the Oireachtas, extract from what is described as “an unpublished right of reply article sent to the Irish Independent Monday, 18th June, 2012” responding to negative reporting in the Independent on the Oireachtas’ handling of Deputy Mick Wallace’s tax affair. Hands up anyone else who thinks Mark may have had one too many dwinkies before firing off this missive. The first definition given by my dictionary for “populism” is “A political philosophy supporting the rights and power of the people in their struggle against the privileged elite” The horror! That our Dail would leave itself open to being accused of such a thing! When everyone knows the Dail dances (or runs!) to its own tune…

“On Bill number CC 0091/98 the first applicant complains in a most vague manner of the conduct of Carney J. He has nothing to complain about. No reason for whatever he is on about is set out in the documents. Any issue as to transcripts on a pending appeal is a matter which cannot possibly undermine the legality of the detention of a prisoner following a trial in due course of law resulting in a conviction. The reason I can make no order on an application such as this is that there is nothing in evidence before me which would suggest that the applicant is in unlawful custody”

“Firstly, against a background of numerous applications by this prisoner to the courts, and the consequent build-up of documentation as application is made upon application, very large envelopes are required by him. As the prison authorities will not supply anything beyond envelopes of an ordinary size, he feels the need to apologise to the court that he has to stuff his documents into what he says are unsuitably sized envelopes. The stationery furnished by the prison, he claims, is a breach of his constitutional and human rights. That is a misapprehension. These important rights have to do with the protection of citizens ofIreland in the fundamental entitlements that inure to their benefit, and which they have given themselves by passing the Constitution or which occur by implication of natural law, whereby liberty, life, property and dignity are assured. This has nothing to do with the size of envelopes”

“Secondly, the applicant complains that, when he needs to have an affidavit sworn so that he can make a further application to the courts, he is obliged to pay between €30 and €50 to a practising solicitor, which he characterises as “rip off prices”. In reality, however, he has made this application on a unsworn basis and the remedy of habeas corpus under the Constitution is capable of bypassing any formality by way of court rules or procedure where that is appropriate”

“Some complaints are made on behalf of all three applicants. One particular complaint is apparently only made on behalf of the third named applicant. It is claimed that he has been wrongfully convicted for what is called “the purported murder of Bernard Smyth”. No further details are supplied. In addition it is claimed that new facts have now emerged which will enable that case to be reviewed before the Court of Criminal Appeal. That may or may not be the case. All of the applicants have full access to legal representation under the criminal legal aid scheme where that is appropriate. The High Court cannot be obliged to release a prisoner convicted of murder simply because one of his friends asserts that he was wrongly convicted and that now there are new facts which will prove that he was always innocent. How can anyone know that this is true? Absolutely no particulars are provided. Even if full details were provided the constitutional entitlement of courts to interfere in a lawful conviction is channelled into appeals in the ordinary way.”

All the above are from a judgment published this week (with emphasis added) which relates to a High Court matter where prisoners from the medium-security Midlands Prison in Portlaoise are pursuing grievances. The case serves to highlight an aspect of the Irish judicial system – which considering the above and a large volume of similar cases, some might like to see changed – whereby any prisoner can make complaint directly to the State’s High Court.

Number mysteries of the Week

2.35% versus 4.31% and 5.62% – At the Bank of Ireland EGM on Monday last, the shareholders voted overwhelmingly in favour of the proposal to advance a €3bn loan to IBRC for one year, secured on a Government bond. Bank of Ireland is to receive 2.35% interest per annum for its troubles. Apparently, the Bank admitted that with 1% interest it must pay the ECB for the funds plus credit default insurance, it won’t actually make anything! Meanwhile the Irish government bond maturing in April 2012 is yielding 4.31% per annum and the bond maturing in January 2014 is yielding 5.62%. The State’s shareholding in Bank of Ireland is now only 15%, so you have to be impressed by the philanthropy of the Bank for approving this transaction!

€831,000 was the total package paid to the Bank of Ireland CEO, Richie Boucher in 2011. The weekly unemployment benefit inIreland is €188

In a completely unrelated development, it was announced on Wednesday that two of the North American investors in Bank of Ireland, WL Ross and Fairfax who each own 9.3% of Bank of Ireland have had two directors appointed to the Bank’s board. Wilbur Ross himself as well asFairfax’s boss, the multi-billionaire Prem Watsa will join 10 other directors, including two appointed by our own government. The board now has a distinctly international complexion.

75% versus 48% – In the Dail on Tuesday, Fine Gael’s Deputy Mary Mitchell O’Connor (the joy-riding hi-YAH!) stated “The [household] charge has been paid by 75% of people” On the IrelandAfterNAMA blog, there was a guest post from Mick Murphy, the National Treasurer of the Campaign Against Household and Water Taxes, who – and this will come as no surprise! – claimed that only 48% of property owners had registered. Plainly, both sides – the Government and household charge protestors – have different agendas, but for all of that, the Government has been coy about releasing hard data on the total number of eligible properties, and somehow Mick’s calculations look more credible than the Government’s.

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