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Archive for July 4th, 2012

“the further detail sought by the Deputy is commercially sensitive and that disclosure of the information would impede NAMA’s ability to negotiate the best possible outcome for the Irish taxpayer in each disposal undertaken by its debtors and receivers” Minister for Finance Michael Noonan in the Dail this week.

You might as well get used to the above form of words, because you’re likely to be hearing them repeated on countless occasions between now and 2020 when NAMA is scheduled to wind up. But you will rarely hear them in such a blatant context when only a couple of days ago, an Irish property company and NAMA’s own chairman provided most of the answers to the question being asked.

Yesterday in the Dail, the Sinn Fein finance spokesperson Pearse Doherty was asking Minister for Finance, Michael Noonan for further information on NAMA’s controversial staple finance initiative – “controversial” because it promises to make up to €2bn of funding available in markets where there is a dearth of alternative credit sources, and accordingly may give NAMA a strong competitive advantage. “Staple finance” is where NAMA converts part of the sale price of one of its assets into a loan which is paid back by the buyer in a few years time.

The full exchange is shown at the bottom of this blogpost but Deputy Doherty was after how much interest NAMA charged for its staple finance and how did that compare with the interest return (yield) being earned by staple finance borrowers. A concern might be that NAMA is selling off Irish property with cheap financing to foreign investment funds in deals which are practically dead-cert killings.

Minister Noonan said that there has been only one NAMA staple finance sale to date – One Warrington Place in Dublin 2, but there was no other information forthcoming on the yield. Luckily we have this report published this week from property powerhouse and NAMA valuer, CB Richard Ellis which tells is

Minister Noonan does tell us that “NAMA may offer up to 70% of the purchase price for a period of 5 years at a typical interest margin of 3% over cost of funds” – yes, the eagle-eyed amongst you might notice that Minister Noonan’s 70% is actually 75% according to NAMA, and that the margin may be 2.5% over cost of funds, rather than 3%. And indeed the five years might be extended up to seven years. But aside from that, Minister Noonan refuses to provide the yield which CBRE tells us was 7.25%. We now know that One Warrington Place was sold to US investor, Northwood for €27m – NAMA chairman Frank Daly told us about it earlier this week. So potentially we have sold a prime asset to Northwood for €27m with upto 75% finance provided at an annual interest rate of about 3.5-4%. Northwood is earning 7.25% per annum on its investment. So if Northwood put in 25% of the purchase price or €6.75m, this might imply an annual return of 17.8%.

No bloody wonder the Minister is hiding behind the “this is commercially sensitive” flim-flam.

Deputy Pearse Doherty: To ask the Minister for Finance if he will provide the figure for the total amount of staple finance provided by the National Asset Management Agency, split by country; the average interest rate charged by NAMA; the average yield on the property sold; the maximum percentage of the sale price financed by NAMA and the maximum length of time over which the staple finance is to be repaid..

Minister for Finance, Michael Noonan:  As previously advised to the Deputy, there is no single standard set of terms for stapled debt which NAMA may offer to parties acquiring commercial property from NAMA borrowers or receivers. Terms quoted will vary to reflect the attributes of various commercial property categories and individual properties, the varying strengths of tenants and leases, and the strength of counterparties/property purchasers. NAMA advises that only strong and reputable counterparties will be considered for stapled finance. For instance, NAMA advises that for prime investment properties, that is properties whose investment characteristics include, for instance, good location and strong tenants on leases with long maturity at realistic rents, which would qualify for the most generous loan terms, NAMA may offer up to 70% of the purchase price for a period of 5 years at a typical interest margin of 3% over cost of funds.

NAMA further advises the first sale of property using staple finance provided by the Agency was that of No 1 Warrington Place in Dublin; that there are a number of further such sales in the pipeline; and that NAMA envisages that it will make up to €2 billion in staple finance available to purchasers of commercial properties controlled by its debtors and receivers in markets in which those debtors and receivers hold commercial properties. The Agency advises that the further detail sought by the Deputy is commercially sensitive and that disclosure of the information would impede NAMA’s ability to negotiate the best possible outcome for the Irish taxpayer in each disposal undertaken by its debtors and receivers.”

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Tomorrow the National Treasury Management Agency (NTMA) is set to auction €500m of 3-month treasury bills in its much-heralded “return to the market”. Presently the Irish sovereign bond that is due to mature nine months hence in April 2013 is trading at 3.9% per annum on the secondary market. Industry sources think that tomorrow’s issuance might attract bidding at 2% per annum, which would probably be officially considered a very good result indeed.

One of the companies that operates under the NTMA umbrella is NAMA. And last week, NAMA announced that it had repaid €2bn of its senior debt – the “senior debt” is the €30bn of NAMA bonds or IOUs which NAMA used to purchase the €74bn of loans from the banks. What interest rate was NAMA paying on its senior debt? Minister Noonan recently reaffirmed that NAMA is paying the 6-month Euribor rate which is present 0.9%. Some people are asking what sort of Keystone cop tomfoolery is at play in the NTMA and the Department of Finance that we are seeking €500m of funding from treasury bills at 2% per annum when NAMA has a mountain of cash which it could lend at 0.9%.

Aah, I hear you say, NAMA was not set up to lend money to the Irish government. Well that little fiction was defenestrated in March 2012 when NAMA was directed by Minister Noonan to provide the €3bn finance to redeem the Anglo promissory note that the Government would otherwise have funded from borrowing. And the Direction issued by the Minister explicitly referenced NAMA’s primary objective of addressing the crisis in the Irish economy caused by the banking collapse, a crisis that four years later is still ongoing with the country in a double-dip recession and experiencing record 14.8% unemployment. So there was no obstacle on this account to prevent NAMA from providing a loan.

But what is preventing NAMA from making this financing available is the commitment given by Minister Noonan to the Troika in May 2012 that NAMA would repay €7.5bn of its senior debt by the end of 2013. This means that NAMA’s mountain of cash will quickly be depleted and won’t be available for other needs. The original NAMA scheme agreed with the EU was that the bonds would be redeemed by 2020 – 8.5 years hence. So what Minister Noonan agreed two months ago was a major concession.

The Sinn Fein finance spokesperson Pearse Doherty asked Minister for Finance Michael Noonan why he did it, and although he provided a response, he had no answer. This is the full exchange (with emphasis added)

Deputy Pearse Doherty: To ask the Minister for Finance the consideration he gave to the concession added in the most recent Memorandum of Understanding On Specific Economic Policy Conditionality whereby the National Asset Management Agency is now required as a term of the bailout, to redeem €7.5bn of senior bonds by the end of 2013..

Minister for Finance, Michael Noonan: I can advise the Deputy that there were commitments on NAMA in previous Troika documentation. The May 2011 Memorandum of Understanding with the Troika included a target for the disposal of assets by NAMA by the end of 2013.

The NAMA Board had set a target of repaying €7.5bn of the NAMA Senior Bonds in issue by the end of 2013. In the most recent meetings with the Troika it was agreed that the Memorandum of Understanding be amended to align to this more appropriate, but closely related, target.

The debt repayment target is considered to be a more appropriate measure to monitor than asset disposals, which can be impacted by currency and other external factors. The Troika seek progress reports on the target at the quarterly meetings with NAMA.”

So tomorrow when the NTMA obtain three month €500m loans at about 2% per annum which will cost this State €2.5m in interest, remember that if NAMA had provided the lending at 0.9%, we would only be paying €1.2m, a saving of €1.3m.

The CEO of the NTMA, John Corrigan earns €490,000 per annum plus a bonus – in 2012 he is waiving 15% of his salary. John Moran, the Secretary General at the Department of Finance reputedly gets €200,000 per annum and Minister Noonan gets €170,000 – all excluding perks, expenses and benefits. And yet these highly rewarded individuals have signed away freedom of action for NAMA’s cash unilaterally and failed to get any concession in return.

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Just over a week ago, NAMA announced its first bulldozing: a 12-apartment single block on the Gleann Riada estate in Longford is to face the wrecking ball. Apparently there is a protected bird species obstructing the NAMA wrecking ball and it might be some time before the birds are re-housed before NAMA gets to work. Meanwhile 300-400 families in Longford are on the housing waiting list, some for more than five years. Despite the prominent announcement by NAMA of its first demolition, the Agency was tight-lipped about the details of its decision-making. We now have more details.

Yesterday, in the Dail the Sinn Fein finance spokesperson Pearse Doherty asked for details about the demolition. The full exchange is shown at the bottom of this blogpost. This section breaks up the component questions and answers.

Q: if he will provide details of the type of apartments involved
A: two-bedroom duplex units and three-bedroom apartments

Q: the present condition of the property, as well as the condition of the property; when NAMA acquired the underlying loans on the property
A: poorly constructed, had been subject to continuous vandalism and anti-social behaviour, including the removal of all fixtures and fittings

[Note, the Minister implies but does not make clear, the damage was done before NAMA took over the loans. Given NAMA’s previous explanations on a range of subjects, you might be right not to conclude when the damage was done, before or after NAMA took over the loans]

Q: the steps taken by NAMA to protect and maintain the property, including the amount of money spent on the property
A: No answer provided

[The implication from the response to how much has been spent on the property to date indicates that NAMA took no steps involving a financial layout to protect and maintain the property in the last two and half years, since the loans were taken over]

Q: the sales and marketing activity undertaken by NAMA to dispose of the property
A: NAMA advises that the investment required to bring the property to a habitable state and to the point that it could be sold, in the unlikely event that a willing buyer exists, would be such as to make the investment uneconomical and that it is questionable whether structurally such works could in fact be undertaken.

[In other words, no marketing of the property has apparently taken place]

Q: if NAMA considered a sales contract which would oblige the buyer to put the property in a sellable rentable condition;
A: No answer provided

Q: if he will explain the reason the property was not made available for auction
A: No answer provided

Q: the costs NAMA expects to spend on the property in future, including an accounting for the demolition costs
A: NAMA further advises that it has expended no monies to date on the apartment block other than monies incurred in the general remediation and upkeep of the overall development in which it is located; and that it has made a provision of €150,000 for all demolition and remediation works relating to the block

Q: if he will provide details of NAMA’s efforts to make use of the property for social housing in the context of the waiting list of 335 families in Longford
A: the onus is now on housing authorities to determine the suitability of these units for the provision of social housing within their functional areas

[So apparently no effort was made to see if this block might have been used to help house the 300-400 families on the Longford housing list. In fact more effort has been made to rehouse the birds presently lying between the block and the NAMA wrecking ball]

Deputy Pearse Doherty: To ask the Minister for Finance following the announcement by the National Asset Management Agency of its intention to demolish a block containing 12 apartments in Longford; if he will provide details of the type of apartments involved and the present condition of the property, as well as the condition of the property when NAMA acquired the underlying loans on the property; the steps taken by NAMA to protect and maintain the property, including the amount of money spent on the property; the sales and marketing activity undertaken by NAMA to dispose of the property; if NAMA considered a sales contract which would oblige the buyer to put the property in a sellable rentable condition; if he will explain the reason the property was not made available for auction; the costs NAMA expects to spend on the property in future, including an accounting for the demolition costs; if he will provide details of NAMA’s efforts to make use of the property for social housing in the context of the waiting list of 335 families in Longford..

Minister for Finance, Michael Noonan: I am advised by NAMA that it acquired loans secured on this property in December 2010; that the property, comprising two-bedroom duplex units and three-bedroom apartments, was poorly constructed, had been subject to continuous vandalism and anti-social behaviour, including the removal of all fixtures and fittings; and had become a significant source of concern for neighbouring residents.

I am further advised by NAMA that the property is located on a flood plain and in the middle of an industrial estate. As a result of its condition and location, NAMA advises that the investment required to bring the property to a habitable state and to the point that it could be sold, in the unlikely event that a willing buyer exists, would be such as to make the investment uneconomical and that it is questionable whether structurally such works could in fact be undertaken. In any event, NAMA advises that Longford County Council, in detailing the Category 4 remediation works to be taken as part of the agreed site resolution plan in respect of this development, set out a requirement that the apartment block be demolished.

NAMA has advised me that to undertake the necessary remediation on this development, including the proposed demolition of this block, it had first to take enforcement proceedings over the property, which was a protracted process involving the reinstatement of anIsle of Manholding company. NAMA further advises that it has expended no monies to date on the apartment block other than monies incurred in the general remediation and upkeep of the overall development in which it is located; and that it has made a provision of €150,000 for all demolition and remediation works relating to the block.

NAMA advises that decisions relating to the provision of social housing are a matter for the relevant housing authorities; that it has identified over 3,000 residential units as being available and potentially suitable for social housing and that the onus is now on housing authorities to determine the suitability of these units for the provision of social housing within their functional areas.”

UPDATE: 9th July, 2012. Fianna Fail deputy Robert Troy whose constituency  is the setting for Gleann Riada claims that for €150,000 the block which comprises 12 x 2 and 3-bed apartments could be made habitable.

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If you are an ordinary John and Mary looking to buy a house from NAMA, then you might have thought that the only financing option available from NAMA was its much-vaunted 80:20 Deferred Payment Initiative or “negative mortgage” as most of us call it, the financing product launched by NAMA in May 2012. But a fortnight ago, in what looks like a highly Jesuitical response, NAMA confirmed that it would examine “deferred payment” for residences on a “case by case basis”. This led to the blogpost on here saying that NAMA was offering “bespoke financing” for Irish homes.

Yesterday, in the Dail in a response to a question from the Sinn Fein finance spokesperson Pearse Doherty, Minister for Finance Michael Noonan confirmed that NAMA had done “a few” of these bespoke deals, but he declined to provide any further details. This is the full exchange (with emphasis added)

Deputy Pearse Doherty: further to Parliamentary Question Number 60 of 13 June 2012, if he will advise in relation to residential property, and apart from the National Assets Management Agency 80:20 Deferred Payment Initiative, the total value of deferred payments sanctioned by NAMA; the maximum length of time for which payment is deferred and the average interest rate charged on deferred payments..

Minister for Finance, Michael Noonan:  NAMA has advised me that the information sought by the Deputy is commercially sensitive me but also that the instances are few where NAMA has provided this facility. Disclosure of the information would undermine NAMA’s future negotiation position in respect of the disposal of residential properties under the control of its debtors and receivers and could thereby reduce the realised proceeds for the Irish taxpayer from such sales. Full details of NAMA’s 80:20 Deferred Payment Initiative are available on the Agency’s website, http://www.nama.ie”

So how do you get access to these bespoke financing deals for Irish homes from NAMA? Obviously, the Minister isn’t providing information, so the following is merely my imagining:

When you first meet the NAMA agent and shake hands, hold onto the agent’s hands and with you middle finger, tap their wrist three times, whilst at the same time rubbing your nose from top to bottom with the pinky on your left hand, and utter these three words : “Billion Dollar Baby”, BUT, and this is critically important, instead of pronouncing “billion” in the usual way : bill-yon, adopt the style favoured by the NAMA CEO, Brendan McDonagh and pronounce it bill-en. You might need to raise your left foot at least five centimetres off the ground also.

Sound ridiculous?

Perhaps as ridiculous as an Agency set up with €30bn of our money selling Irish homes in a new and hitherto secret manner, where part of the purchase price is deferred, but on what terms, who knows. The Minister is not even confirming the total value of these bespoke deals undertaken to date.

On a more serious note, one of the homes that has apparently been sold with this bespoke financing was sold for several million euro and 20% of the purchase price was deferred for several years. But who knows what secret deal NAMA might give you if you ask in the right way.

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