Psst! Fancy a 20%-plus per annum return on your cash? It’s for an investment in Irish commercial property which has already fallen 65% from peak. As long as commercial property hasn’t fallen below today’s prices in five years time, then you will double your money. If commercial property increases by 10% over the next five years compared with today, even including inflation, then your return will increase to nearly 30% per annum. The scheme is underwritten by NAMA. Interested? Then too bad because NAMA only wants to hear from “strong and reputable counterparties”, but if you are a US “privately-held real estate investment advisor” run by the former head of Blackstone, then NAMA will welcome you with open arms, as indeed it recently did when it sold One Warrington Place – now confirmed on the Northwood website – for around €27m.
Ever since NAMA introduced its so-called “staple finance” initiative last year, where it converts part of the sale price of its commercial property into a cheap loan, the property community has been calculating exactly what financial impact the availability of such financing has on the Irish commercial property market.
“Staple financing” or vendor financing works like this : NAMA sells you a commercial property, an office block for example, for €100m. You put up €30m in cash and the remaining €70m is converted into a loan for five years on which you pay 3.5% per annum. The office block you buy is yielding 8.5%, in other words it generates €8.5m in rent each year. So you collect your €8.5m and you pay NAMA 3.5% on €70m or €2.45m per year. That will leave you with a “profit” annually of €6.05m. That’s over €30m in profit in five years, or in other words, you double your money. Of course at the end of five years, you’ll have to find the remaining €70m to pay NAMA, but as long as prices haven’t declined by reference to today, then you should be able to (a) sell the property and cash out, having doubled your money or (b) refinance the €70m loan with another lender.
Of course, this is not a guaranteed return. Irish commercial property has so far fallen 65% from peak, and it might fall further. But factoring in inflation, what is the betting that property in five years time is worth more than it is worth today?
If property increases by 10% over the next five years, then your return will increase to 27% per annum. Why so much of an increase? Because you are only putting up 30% of the purchase price, but the increase in property prices applies to 100% of the property, so you disproportionately benefit from any increase. Of course the same is true for declines.
But the question for NAMA is why is the Agency selling property which is yielding more than NAMA’s cost of funding – about 1% to which NAMA adds a margin of 2.5% when lending to purchasers. In the above example, if NAMA held onto the property for five years, then NAMA would generate €42.5m in rent and only pay €1.5m in interest on €30m worth of bonds which are used to finance NAMA. What NAMA is doing is gifting away profits to someone else. Of course, if Irish commercial property continues to decline over the next five years, then NAMA will have lost out by holding on to the property, but does NAMA not believe its own press when it says that Irish commercial property prices are stabilizing?
NAMA Wine Lake 
(c) walk away.
It is wildly optimistic to think Ireland will be in a state of growth in 5 years.
Foreign investors have choices.
New York, London, Paris……Ballyjamesduff?
Don’t forget the basic question:
Who in their right mind would bet on Irish property right now?
We haven’t even hit the bulldozer stage (returning sites to agricultural use) and I am guessing in 5(+) years there will be a fleet of bulldozers creating rubble from unfinished estates.
Hasn’t it been 5 years already, and look how little has been achieved, not even stability..
Try 25 years.
@sfcawriter hi sf ca,the math is quite compelling,my comment is a little inside the beltway,it’s non recourse lending by NAMA.
So the first group of people people in Ireland who could have the option to walk away from non recourse property loans will be…..eh….rich foreign investors dealing with NAMA?
Is Nama kicking starting the game by giving the ‘away’ team a 10 goal lead?
Sounds desperate and unfair.
Ah, yes…. the Carpetbaggers. Aka the vulture funds, the PE funds – but in reality the second phase attack of the same bondholders that just cleaned us out.
In United States history, carpetbagger was a pejorative term Southerners gave to The Yankees who moved to the South during the Reconstruction era, between 1865 and 1877.
The term referred to the observation that these newcomers tended to carry “carpet bags,” a common form of luggage at the time (sturdy and made from used carpet). It was used as a derogatory term, suggesting opportunism and exploitation by the outsiders. Together with Republicans they are said to have politically manipulated and controlled former Confederate states for varying periods for their own financial and power gains. In sum, carpetbaggers were seen as insidious outsiders with questionable objectives meddling in local politics, buying up plantations at fire-sale prices and taking advantage of the Southerners.
The term carpetbaggers was used to describe those outsiders who arrived ready to loot and plunder the defeated populace.
Any similarity to our own situation is not purely coincidental. Nothing much changes. Just different victims.
Nah it’s just Ireland,business as usual.
Puts NAMA,in a bit of a awkward position,in so much as perfecting PG’s.In that their new BFF’s are not required to provide any.
Best advice to NAMA is that given to the virgins in Victoria’s time about to be relieved of their maidenhood by oily foreigners – “Just lie back and think of England.”
Gosh bit of a trilla yesterday,a nations dreams crushed when Cole hit the bar!
Pirlo is the embodiment of all that’s fantastic about Italy,what a penalty.
The deal can/is structured in that you get your money back plus a very healthy return,and option to walk away prior to lease expiry,sweet.Morally and possibly legally complicated to persecute Irish developers if you doing these deals with their assets.
Seriously, these are NAMA’s only buyers until there is credit availability in the marketplace. And there is no sign of that anytime soon.
Ireland needs to grow up and get some financial maturity its BUSINESS,not personal start with passing modern humane BK legislation for All,Shatter will fu*k it up,as usual.Stop trying to ‘Blame’ someone,just get on with it.
Apologies to NWL,long weekend.Free the Irish people from this archaic draconian slavish debt trap.Then you will/can have some competition.
Do you extend this to include a complete amnesty for all fraud, corruption, and other crimes committed by individuals during the boom? Should we turn the other cheek and a blind eye to every misdeed and scandal that got us into this mess?
Does “get on with it” mean “get away with it”?
@OMF, Heads stuck in the past, crying over stolen losses that are impossible to recoup. Be aware of the family silver that the thieves are preparing to put in their carpet bags. – It’s the only tangible place where something can still be saved.
It was Young,that hit the bar,Coles penalty was saved.
@OMF you already have that,the owner of the largest media company appears to have no moral compass,considers it completely normall and acceptable to publicly fraternize with a banker who has been arrested twice,the subject of an ongoing investigation.Anne Harris on her Road to Damascus,describes the current situation,the piece has been widely circulated but here it is.
http://www.independent.ie/opinion/comment/anne-harris-obrien-the-real-issue-is-press-freedom-3140355.html
doesn’t NAMA have to repay €7.5bn of its Nama bonds by 2013…as imposed by the Troika (aka the Germans). In that case its sell what ever you can today to achieve the target….no time to worry about who makes money. After that the family silver is sold and the rest is illiquid rubbish nobody wants………then we have the biggest problem
@Captain, yes, the new Memorandum of Understanding with the Troika which was published last Friday week does indeed contain – for the FIRST time – a requirement for NAMA to repay €7.5bn of its senior bonds by the end of 2013. NAMA is presently sitting on a cash mountain of €5bn. It has to date repaid €1.25bn of its senior bonds. So it really needs just come up with €1.25bn in 18 months. So it shouldn’t be forcing fire sales or suboptimal sales.