Veteran developer Paddy Kelly is back in the news this week, with damaging reports in the Sunday Business Post that NAMA has issued a tender to its panel of five – nine, according to the NAMA panel displayed on the NAMA website – providers of Credit Verification (Investigative) Services to examine Paddy’s statement of affairs and the affairs of his family including the more famous son, Simon. NAMA hasn’t commented on the report, which has an odd aura about it, and we must hope that NAMA has not descended to megaphone communication with its developers, using specific media.
Today, we report that loans underpinning a project in which Paddy Kelly was a lead investor, the Hotel Phoenicia in Malta – website screen grab above – have been sold by NAMA.
The loans on the hotel are understood to have a face value of €21m. The original consortium of investors in the hotel in 2007 was led by Paddy Kelly but is understood to have included Luan Cuffe, Pearse Farrell (of Farrell Grant Sparks fame – often appointed as receivers by NAMA) and Alastair Tidey (son of Don Tidey, famed for being the supermarket executive kidnapped by the IRA in 1983). NAMA acquired the loans from the Irish Nationwide Building Society. It is understood that the investors, or a subset of them, attempted to buy the loans from NAMA but NAMA would not entertain their offer, in part because of proscriptions under the NAMA Act – specifically the proscription on NAMA selling assets back to the original borrower where the borrower is in default.
So, NAMA engaged NAMA’s head of asset management, John Mulcahy’s old firm Jones Lang LaSalle in Dublin to sell the loans which are secured on the upmarket hotel in Malta. There was a public process managed by JLL in London with a fixed closing date and JLL were successful in selling the loans to Mark Shaw’s Scottish property group, Hazledene and the purchase price understood to be €19m. So, all straightforward so far, NAMA acquired €21m of loans secured on property and sold them on at a 10% discount to their face value, so the taxpayer makes a loss on the deal of €2m-odd.
Claims that Hazeldene has discussed the sale of the loans to any subset of the original consortium were firmly rejected this evening by Mark Shaw, the chief executive of Hazledene.
Neither NAMA, JLL nor Hazledene had any comment on the matter at original time of writing, but Hazeldene has now confirmed that it acquired the loans after an open public competition, but that it has not had any discussions whatsoever with any subset of the original consortium about the sale of the loans.
NAMA Wine Lake 
This is not the first NAMA deal that Edinburgh’s Hazledene Group has acquired. It also bought the Pragelato Village Resort, built for the 2006 Winter Olympics, in an deal worth more than £25m. The resort was also owned by Paddy Kelly and Alastair Tidey.
Pragelato consists of 205 individual chalets and extensive luxury facilities, and was built at a cost of more than £85m.
The resort sits high in the mountains 50 miles to the west of Turin and links directly with the Via Lattea skiing area.
As well as the chalets, it comprises a hotel with a cinema, a nearby 10-hole golf course and a spa complex which is the largest in northern Italy.
It was built in 2006 and construction was funded by Anglo Irish Bank. The Irish investors lost their equity when the original holding company was placed in receivership in 2008.
NAMA’s negotiating skills can at best be described as slapstick. The three stooges could do better. This is not the first time that NAMA has egg on its face relating to the underselling of loans and – although it is not the case here – the victim of shafting by its receivers and their mates.
Martin Shaw’s Hazeldene is in a nice position on the Phoenicia loan, having been favoured by NAMA. It now has borrowers that are willing to pay back the loan and are in funds to do so. Therefore, at the very least it will make a €2 million profit on the Irish taxpayer – thanks to NAMA’s incompetent sales process – merely by consenting to the borrowers repaying the loan. The hotel is trading well, has potential development land as part of the package and rumours are that the loan is performing. It is also notoriously difficult to appoint receivers in Malta. The borrowers have some compensation. At the very least, they will be able to trade their personal guarantees (and maybe even a bonus payment) if they decide to let Hazeldene keep the property.
In the end the losers are the taxpayers. The utter incompetence of NAMA is literally incomprehensible – even to me. The particular incompetence of NAMA’s negotiating skills is currently aggravated by the politically inspired malice that NAMA pursues against its borrowers. If the 10% deficit that NAMA suffered on the recovery of this loan – to the benefit of the vulture capitalists and to the detriment of the taxpayer – is replicated on a comprehensive scale (and there is already a build-up suggesting that it is), then there is little hope of the Agency ever reaching its ambitious recovery targets.
@WSTT, the chief executive officer of Hazledene has been in touch, and his approach has been verified, and he states categorically that “we have not had any discussions about selling loans to original consortium, nor will we.” so the blogpost above has been modified to reflect this statement.
Unless JLL was doing a freebie lets not forget the substantial fees,I was going to say earned but charged appears more appropriate,at least 2%?
Given that NAMA retained these highly renunerated and prestigous pros. who had the deal flipped on then,perhaps NAMA needs to reevaluate that relationship.
Can sort of understand the distaste among the “public” of NAMA developers buying back at a loss loans but paying par?
@JG, Hi John, my information suggests that the borrowers were and are prepared to pay par. NAMA sold to Hazeldene at 10% below par. Hazeldene has no option but to pass the property to the borrowers if they are prepared to pay the loan off. Cost to the taxpayer = €2 million (plus fees as you say). Profit to Hazeldene for accepting payment of loan from borrowers = €2 million
@NWL, While Hazeldene’s CEO might not have any intention of selling the loan, he cannot prevent it being repaid at par. It is my understanding that the borrowers intend to repay the loan and Hazeldene will end up with a €2 million profit that NAMA should be pocketing on behalf of the taxpayer.
If Hazeldene refuse payment then I imagine that the proverbial “wigs on the green” will follow – or whatever is the equivalent in the Maltese courts.
@WSTT, of course there is generally no barrier to borrowers repaying their loan in full! Hazledene just wanted it stressed that there had been no discussions on its part to sell the loan, and also that there was an open competition for the loans presided over by JLL in London with a fixed closing date, so the price paid by Hazledene was the market value, no more or no less.
@WSTT they will take the money and run..not familiar with Malta law but what judicial system except maybe Venezuela,would award the lender title if the borrower can pay back the loan in full.
@WSTT,Hi WSTT greetings from sunny San Diego…70 clear blue sky…off to the ZOO today,no not Tresaury Building to meet NAMA!
With the emergence thankfully from BK of so many of the Irish developers,this is going to be an ongoing issue for NAMA.
Why would a hedge fund or private equity group NOT retain one the original principals to realize value…one of the most disappointing aspects of NAMA has been its failure to enter into any joint ventures or utilize the expertise of the likes of Paddy Kelly.
I’m sure the x HSBC chap is a font of knowledge on many topics..but Irish RE!
Expect next year some prominent developers to be back in the saddle recapitalized and earning,employing people and paying taxes..in the UK!
What’s NAMA to do…deed restrict the property so that it can never be sold to NAMA’d developers ….they need to get ahead of this issue.
@NWL, Ah, therein lies the rub, as the bard said….. What is “open competition”? Is it one where the borrower is excluded because it is proscribed by law?
That one will be challenged before too many more years pass – or when the taxpayers get tired of subsidising the carpetbaggers and passing on lottery sized profits to them.
@WSTT, in property you would say that the market value was the price struck between willing buyer and willing seller, both in possession of perfect knowledge and you would exclude special purchasers. In this case, the market price was arrived at excluding one special purchaser, the original borrowers, and I think you’re right, Minister Noonan and NAMA will again be challenged on this in the New Year, there is a cost to proscribing sale of assets to borrowers in default, and that has come about for political and not economically rational reasons, and we should know the cost of the revenge against borrowers!
@NWL. Douglas Horton said of revenge –
“While seeking revenge, dig two graves – one for yourself.”
it seems an apt quotation in these circumstances.
The JLL / NAMA sales methodology as stated of “an open competition for the loans presided over by JLL in London with a fixed closing date” just confirms the naiveté of NAMA (its advisors should not be naive) when it comes to selling its loans. Not to have a second round or further discussions with the bidders after receiving offers does not guarantee open market value. It just excuses shutting everyone out and guarantees that the vendor has not received the best price that could be available following further negotiations.
Amateurs?… Sweethearts?… Or the opportunity for something more minacious?
Bit sporty of NAMA..thought they never leaked or commented on individual clients ..
“..providers of Credit Verification (Investigative) Services to examine Paddy’s statement of affairs and the affairs of his family including the more famous son, Simon.”
So basically they have doubts about the validity of the net worth statements ..potentially damaging to future business prospects.May discourage future partners this type of on going investigation,NAMA should investigate how this info is making it into the public domain…unless its deliberate!
From checking with sources close to the Kellys, they were totally unaware of this action by NAMA. The news was obviously leaked, but begs the question “Why?”.
It also demonstrates NAMA’s complete failure at client / borrower relationships.
Thr public leak will have caused considerable damage to the possibility of Paddy engaging in any future activity or partnership that would enable him to repay his debts. The leak seems petulant, vindictive and self-defeating to me. It is certainly contrary to the spirit of NAMA’s responsibility as delivered in the Treasury certiorari judgment.
If it was me, I’d be reaching for my lawyer.