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Archive for September 28th, 2012

You would think that after the month NAMA has had, with criticism over its sales processes and transparency, that NAMA would at least let us know what new properties have been added to its list of foreclosed property but no, you will need trawl through each of the 1,328 properties now on its website to identify the new ones. The total of 1,328 properties which represents the foreclosure position at the end of August 2012 is up from the 1,281 at the end of July but you can’t deduce from this that 47 new properties have been added.

You can’t even sort NAMA’s foreclosure list by “date added”

So yet again, despite being NAMA’s most sought-after piece of public information – the first list in July 2011 attracted over 100,000 hits on the NAMA.ie website –  we must go through the 1,328 properties line-by-line to identify the changes. NAMA doesn’t even issue a press release any more to indicate when its website has been updated. And NAMA wonders why it is the butt of so much public and professional criticism.

Update here soon….

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“NAMA, of course, is not a spectator; nor is it the hurler on the ditch who has the luxury of deriding the players on the pitch.” NAMA CEO Brendan McDonagh addressing the Construction Industry Federation conference in Dublin this morning

The NAMA CEO Brendan McDonagh delivered a speech to the Construction Industry Federation (CIF) this morning, the transcript of which is available here. There is nothing really new in the nine pages and Brendan continues to beat the drum as best he can to instill a sense of confidence in the Irish residential and commercial property markets. As he says, it is easy for those on the sidelines to comment (!) but NAMA has the responsibility of delivering.

What’s new? The regular audience here might be interested to see that Brendan is now using the yields on Irish sovereign bonds to emphasise the attractiveness of Irish commercial property. With the 5-year bond at 3% and yields in commercial property in the 8% zone, sure you’d be mad not to buy Irish property. It’s as good a contribution as any I suppose, but having this morning re-examined the crapola spewed forth in 2009 about historically high yields presaging the imminent bottom of the commercial property market, you might remain cynical. A yield is simplistically rent divided by value, and when both rents and values are unstable, then yield analysis is little better than scrying tealeaves.

A few other snippets,

(1) the launch of NAMA’s Qualified Investment Funds will be “shortly” and speaking of which, the Sinn Fein finance spokesperson this week asked the Minister for Finance Michael Noonan about progress with introducing the QIFs – the parliamentary questions are at the bottom of this blogpost.

(2) NAMA’s provision of €2bn of staple financing is, coincidentally, over the same period as its €2bn investment in Irish developments – four years! And NAMA says that “most of” the staple financing will be in Ireland though when Brendan says “NAMA will be investing of the order of €4 billion in the Irish economy over the next few years through our loan and vendor finance.”, you get the impression that most of the €2bn staple financing is earmarked for here. NAMA says the Irish commercial investment market was worth €200m in 2011, so you can see that NAMA’s presence in this market is dominant.

(3) NAMA will “shortly” be rolling out its deferred mortgage initiative to 750 homes on its portfolio.

(4) NAMA is examining commercial development in Dublin’s “central business district” in light of comments from the IDA about imminent shortages of HQ-sized offices in central Dublin.

(5) NAMA says Dublin residential property prices are down 60%, that there is some sort of stability returning to the market evidenced by the CSO’s index, but that there is unlikely to be any short-term recovery. NAMA says most of its portfolio is in and around major population centres and there is evidence of imminent shortages in some places.

(6) NAMA will demolish property on “health and safety” grounds. NAMA seems happy with its demolition of the apartment block in Longford. NAMA is investing €3m in finishing ghost estates and says that NAMA’s involvement in such estates is limited at 10% of the total.

Deputy Pearse Doherty: To ask the Minister for Finance when the National Asset Management Agency expects to make an appointment for the provision of investment management services for its proposed qualified investments funds, the tender for which was issued on 25 January 2012 with a closing date for bids of 6 March 2012.

Deputy Pearse Doherty: To ask the Minister for Finance when the National Asset Management Agency expects to make an appointment for the provision of custodian and fund administration services for its proposed qualified investments funds, the tender for which was issued on 3 February, 2012 with a closing date for bids of 15 March 2012.
Deputy Pearse Doherty: To ask the Minister for Finance when the National Asset Management Agency expects to launch its first qualified investment fund; the anticipated value of the QIF; the nature of the assets that will be managed by the QIF; and how the QIF will be marketed.

Minister for Finance, Michael Noonan :  I intend to take questions 111, 112 and 113 together.

I am advised that NAMA, for and on behalf of the QIF, will make an announcement shortly as to the outcome of the tender competitions for investment manager and for custodian and fund administrator.

I am further advised by NAMA that the Qualifying Investor Fund (QIF) is expected to be launched, subject to regulatory approval, at the end of 2012. NAMA advises that the QIF will publish a prospectus which will set out the subscription process for QIF shares.  Investment in the QIF will be limited to qualifying investors (as defined by the Central Bank rules).

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“The practice of NAMA engaging in the private sale of assets under its portfolio without putting those properties up for sale in the open market stinks. It needs to come to an end.” Fianna Fail finance spokesperson Michael McGrath excoriating the NAMA practice of off-market selling during Dail debate 25th September 2012

NAMA’s most senior property man is John Mulcahy, the 63-year old who has a lifetime of experience in property, former chairman of property service group, Jones Lang LaSalle (JLL) in Ireland, a millionaire judging by his €2.3m stake he was reported to have had in JLL after his appointment to NAMA. At this stage of life, John has probably forgotten more about the property business than most know. His 30-minute performance on the witness stand at Paddy McKillen’s ill-fated court case in London this year was a high point of the year when he effortlessly flummoxed Paddy McKillen’s formidable legal team with his candour and expertise. John was made a director of NAMA this year though he still retains the job title “Head of Asset Management”.

Back in 2009 it is understood it was John who was advising then-Minister for Finance Brian Lenihan that because yields on commercial property were at historical highs, that meant that we were close to the bottom. Since then, commercial property prices in Ireland have declined by 25% and continue to decline. Despite the life time of experience, John was wrong, and wrong on a grand scale. But that is spilt milk and water under the bridge. And perhaps John might say in his defence that no-one could have foretold how deep and prolonged our Depression would become.

Today, NAMA itself, no doubt acting on the advice of John Mulcahy, is wrong again. It has sold and is selling vast amounts of assets off-market. It sold at least two substantial landbanks around Cork city off-market and of course we learned in August, thanks to John Mooney at the Sunday Times, that the property of a NAMA developer in Lucan had been sold off-market to a former NAMA employee, Enda Farrell. In all of these cases NAMA defends itself by claiming the sales were only effected after an independent valuation.

Earlier this week, the usually even-tempered Fianna Fail finance spokesperson Michael McGrath again criticised NAMA’s disposal of property off-market. Deputy McGrath said the practice “stinks”. Deputy McGrath is an accountant and politician, not what you might call a “property man” but his party colleague in the Seanad, Senator Mark Daly is, or at least is an auctioneer and the selfsame senator has been calling for a year and a half for NAMA to make its sale process transparent. And whilst Deputy McGrath might not be a property man, he’s not short of common sense as evidenced by a previous Dail debate on NAMA’s dubious practice of selling property off-market. He quite rightly pointed out that “independent valuations” are questionable when there is a paucity of transactions.

So how can NAMA justify its position in not putting all property for sale on the open market? Step forward John Mulcahy who will no doubt say that selling on the open market is not appropriate for certain types of property in certain locations. Take the €1bn-plus CitiTower in London’s Docklands which is owned by NAMAed Derek Quinlan and a UK property magnate Glen Maud. John’s former company JLL is offering this property for sale by private tender. JLL will no doubt be familiar with the limited set of buyers with such deep pockets and will concentrate on marketing directly to these rather than expose itself to dealing with every tyre-kicker that comes along. But John was wrong in 2009. Might he also be wrong today?

Next week Allsop Space will be holding the biggest property auction ever in Ireland with 127 Lots with maximum reserves of over €15m up for grabs. We can all attend in person or watch the auction proceedings online. We can bid online or by telephone. We are able to attend viewings and obtain legal packs. If a 5-bedroom property with two acres of land comes up for grabs in Lucan, we can all transparently see what the present market value is, and if a NAMA employee buys it for €410,000 we can wonder if he knows something the rest of us don’t, but at least we can say that the process was transparent. The image above is from an advertisement in last weekend’s Sunday Business Post.

It is high time to put an end to NAMA’s “stinking” practice of selling loans and property off-market

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Jim’s company Jim Limited owes NAMA €10m on a property now worth €4m. NAMA forecloses on the loan, has receivers appointed to Jim Limited. Jim himself didn’t give personal guarantees and is in fact quite wealthy, he has €20m in the bank in his own name. Should Jim be able to buy property from the receivers appointed to Jim Limited?

John’s company John Limited owes NAMA €100m on a property now worth €30m. John gave a personal guarantee on the loan and John is not very wealthy as an individual with €100,000 in the bank. However John has been married to Mary for 20 years and during the boom-time, Mary became wealthy in her own right and as a normal lawful precaution, John arranged to have some assets put in his wife’s name during the good years. Mary is worth €20m today in her own right. NAMA forecloses on the loan and after John gives NAMA everything he owns in his own right, should John and Mary together be able to buy property from the receivers appointed to John Limited?

Sean didn’t have a company at all, but he personally owes NAMA €5m on a property worth €1m today.  He has other wealth of €200,000. NAMA forecloses on the loan, has a receiver appointed to the property and takes all of Sean’s other wealth. Can Sean now work as a consultant to a company that can buy property from the receiver appointed to Sean’s property?

In each of the three cases above, the answer is “no”. NAMA is prevented by section 172 of the NAMA Act from selling loans and property to debtors who have defaulted on loans owed to NAMA. The Agency is also stopped from selling assets to associates of such debtors.

Developers are unhappy with the above state of affairs and think that NAMA can get more for its assets if it is released from the proscription in the NAMA Act. And it would appear economically rational for NAMA to seek to get the most for its assets, as long as it has pursued defaulting developers to the full legal extent feasible. However, as economically rational as it might be to amend the NAMA Act, it may just not be politically or societally acceptable for those whose property debts remain unpaid to subsequently benefit from assets acquired from NAMA. But how much might our principles be costing us? Difficult to say but from time to time – for example here where a defaulting debtor was said to have offered €900,000 for a property eventually sold for €300,000 – you hear stories of developers making offers for NAMA assets and despite their offers being higher than the price ultimately realised, the developer’s offer is rejected by NAMA on account of the provisions of the NAMA Act.

In the Dail this week, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael Noonan to try to quantify how much our principles are costing us by asking about offers rejected by NAMA because of proscriptions in the NAMA Act. In what must be one of the most gobsmacking displays of bureaucracy ever, Minister Noonan was able to confidently state that NAMA is not losing out because NAMA pre-approves buyers before the buyers can make an offer, and the pre-approval involves buyers declaring they are not proscribed by the NAMA Act!

So we remain ignorant of how much our political and perhaps societal principles are costing us. If the loss was €50m over NAMA’s lifetime, then we might be prepared to stomach that loss. If the loss was €1bn, we mightn’t.

You might ask whether there would be any loss at all because the proscribed buyer would surely only offer the “market rate” This might be correct in some cases but a buyer who has experience of a development would be characterised as a “special purchaser” in the valuation business. Such a “special purchaser” might have unique knowledge or experience with what was their asset and may be prepared to offer a premium over the market rate.

The full exchange is here.

Deputy Pearse Doherty: To ask the Minister for Finance the number of instances in the past 12 months when the National Asset Management Agency has rejected an offer for assets under his control which, firstly, originated from a party the sale to whom the NAMA Act proscribes and secondly. was higher than the price eventually settled on by NAMA; if he will quantify the overall loss to NAMA arising from any such rejections..

Minister for Finance, Michael Noonan: Prospective purchasers of assets controlled by NAMA debtors and receivers are required to sign a  declaration under Section 172 of the Act confirming that they are not a connected party within the meaning of that section and of the NAMA Board’s Guidance Note on the Disposal of Real Estate Assets by NAMA Debtors and Insolvency Office Holders which is published on NAMA’s website. As this declaration precedes the evaluation and possible approval of any potential bids relating to the sale of assets under the control of NAMA debtors and receivers, the issue raised in the Deputy’s question does not arise.

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[UPDATE: 28th September 2012. The following has been received from the Sunday Independent “The Sunday Independent would like to clarify that Nama was contacted in relation to the Greystones Harbour Development story as were the other parties involved. Our reporter stands by her story and notes that neither Nama nor the Sisk Group has sought a clarification from us. We also note that Namawinelake made no attempt to contact us prior to coming to his or her conclusion: “maybe it would be a good idea for the Sindo to seek comment from parties when publishing such stories and if they are “inaccurate” to publish corrections.””

To which, the response on here is: “it was Minister for Finance Michael Noonan who told the Dail via a reply to a Parliamentary Question that the story in the Sunday Independent was “inaccurate”. Presumably the Sunday Independent will now contact the Minister to request that the record be corrected as necessary. The reference on here to the Sunday Independent seeking comment was based on the absence of comment noted in the report of 2nd September 2012 and the fact that NAMA lambasted the Sunday Independent for not contacting it beforehand with respect to the Google story which is the subject of the NAMA press release referred to at the top of this blogpost.]

Earlier this year NAMA was so outraged by the standard of reporting at the Sunday Independent that it took the unprecedented step of issuing a press release rejecting a story and criticising reporting standards at what is still Ireland’s best-selling Sunday newspaper. It emerged that NAMA subsequently referred the Sunday Independent to the Press Ombudsman following the publication of a separate story. Now NAMA says that another story in the Sindo is wrong.

Earlier this week the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael Noonan about a report in the 2nd September edition of the Sunday Independent, this was a story by Roisin Burke which claimed that NAMA had agreed a controversial debt write-down. The Sindo reported “NAMA is believed to have written down over €50m of debt attached to the blighted Greystones Harbour Development. The write-down is thought to be part of a secretive deal struck to allow building giant Sisk Group to take over the project, which is a public-private partnership in conjunction with Wicklow County Council.” Following this report in the Sindo, the matter was re-reported on here but expanded to deal with what would have been a controversial aspect of any such debt write-down, namely the sale of a defaulted-on debt to one of the debtors. NAMA was asked by this blog – though seemingly not by the Sindo, or if it did, there is no note in the report of NAMA’s response – for a comment on the matter, and as is normal with “individual cases” NAMA responded to say it didn’t comment on such cases. In the parliamentary question this week, based on the Sindo story, Deputy Doherty challenged NAMA’s reported debt write-down, Minister Noonan said that “the media report which has prompted the Deputy’s question is inaccurate”. The controversial aspect of the report, if it had been accurate, would have been NAMA writing down a loan to a debtor, albeit one of a consortium of two debtors with one understood to be repaying its part of the loan, though if the loan were to be enforced then presumably that debtor would have been severally liable for their partner’s default. At Greystones Harbour and in the case of the Sispar consortium, it is understood that the performing debtor was Sisk, the debtor in default is Michael Cotter’s Park Homes. But given the Sindo story was inaccurate, the question seemingly doesn’t arise. And maybe it would be a good idea for the Sindo to seek comment from parties when publishing such stories and if they are “inaccurate” to publish corrections…

This is the full exchange

Deputy Pearse Doherty: To ask the Minister for Finance further to a report in a Sunday newspaper that the National Asset Management Agency has agreed a substantial debt write-down on a loan that was made to a consortium of two companies developing Greystones Harbour, if the loan in question was in default of any of its covenants including loan-to-value covenants, and if so the basis on which NAMA agreed to any debt write-down arrangement with one party to the consortium and how such arrangement sits with section 172 of the NAMA Act?.

Minister for Finance, Michael Noonan : I am advised that, under Sections 99 and 202 of the NAMA Act 2002 and the normal rules of banking confidentiality, NAMA is precluded from disclosing the details of transactions involving debtors. I am also advised that the media report which has prompted the Deputy’s question is inaccurate.

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