“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.”
And isin’t it ironic…don’t you think..great to find out Frank has a sense of humor,was he smirking when he addressed the packed house of fawning adoring Chartered Surveyors.
“In that same vein I would place the need for greater transparency on prices within both the residential and commercial property markets. Such transparency would surely improve buyer confidence. NAMA welcomes the proposed publication by the Property Services Regulatory Authority (PSRA) of residential property sales prices. We favour extending this proposal to commercial property sales transactions because we believe that transparency would enhance the efficiency of that market also.”
NAMA’s agent is on record in the IT prompting 7 year money for the lucky buyer here,assume non recourse.So the lease expires,assuming tenant makes it that far,then what.Here,Frank catch the keys,as US funds are non recourse have all their cash back plus.NAMA is matching its financing term with lease expiration….oh well they will still have the parking income.
This is high risk lending with limited reward,the rate charged is not reflective of the risk/reward ratio is skewed in buyers favor,they haven’t a clue at NAMA.
“High yielding investment producing in excess €2,724,000 per annum Prominent Grade A offices built in 2003 Let to Depfa Hold One Limited with a guarantee from Depfa Bank plc with just under 7 years unexpired Circa 47,108 sq ft of offices Adjoining 370 space car park let to Parkrite Limited NAMA Vendor Finance available For further information or to arrange an inspection, please contact Suzanne Fitzgerald on +353 (0)1 665 3984 or Ciara Horgan on +353 (0)1 665 3986”
http://investmentsearch.knightfrank.ie/property/display/130799
The non-recourse aspect makes this one a steal.
Northwood put up 25% or about 8M
Every year for 7 years they receive 7.25% of 27M or about 13M in total
They pay (say) 4% on the 19M they borrowed or about 5.5M in total over 7 years
So in the 7 years they receive 13-5.5M = 7.5M nett (assuming stable rent)
So if the Irish property market is stable over they next 7 years, they will have almost doubled their money
If the Irish property market doubles in value in the next 7 years they earn 54-19 +7.5 = 42.5M on an initial 8M of equity.
If the lease extends for a few years at the 7.25% rate it is really hard to see how Northwood could lose on this.
For NAMA the plus is they get to transfer properties to their friends without any need for auctions, transparency etc
If you were wondering why they announced that tiny and strange staple financing for residential homes a couple of months ago, now you know why. Its because it gave them cover to introduce what they really wanted – the staple financing scheme above.
@NYT my link was probably confusing,it references a property currently for sale,the tenant Depfa has a kick out clause in year 7,there is parking garage income here too.The NAMA vendor financing is/was described numerous times as for five years.The agent on this deal stated that 7 years was possible here.
Norwood actually purchased Warrington Place,lots references on here and elsewhere to the transaction,but your basic premise applies.
http://www.northwoodinvestors.com/one_warrington_place.html
This will prove to be NAMA’s greatest scandal as its term progresses. This website is the only entity picking up on it. It has passed over the heads of the short planks in the media. But when the history of NAMA is written this is the issue that it will be judged on. It is selling the assets of Ireland to foreign carpetbaggers and funding them to do it for a pittance – crumbs from the table for the taxpayer – while the Private Equity vultures look for and receive risk free 25% plus per annum returns courtesy of NAMA’s largesse.
And the reason why? Think about it – but it starts with the CAB culture. Self defeating. Think nose, spite and face.
Californians thinking outside the six pack. I’m impressed.
http://www.abajournal.com/news/article/local_california_officials_consider_using_eminent_domain_to_restructure_und/
Highlights worst case, but shows how far from over this problem is.
sufficiently confusing,so NAMA is not covered by FOI in that its only the LARGEST commercial enterprise undertaken by the state.
“The Deputy will be aware of the significant commitments given in the Programme for Government to restore the Freedom of Information Act, to extend its remit to other public bodies including the administrative side of the Garda Síochána, subject to security exceptions and to extend the Act to ensure that all statutory bodies, and all bodies significantly funded from the public purse, are covered.”
http://www.kildarestreet.com/wrans/?id=2012-07-04.619.0&s=freedom+of+information
http://www.rte.ie/news/2012/0706/foi-state-funded-bodies.html