This morning, NAMA has issued a statement about the sale of Project Aspen – the statement is here on the Gordon MRM website but get it quick because the “archive” feature on the Gordon MRM website frequently doesn’t work. Project Aspen is the portfolio of loans relating to Dublin property developer, David Courtney and relate to a number of properties in and around Dublin. The loans have a par value of €810m. NAMA doesn’t say this morning how much the loans have fetched – sources here last week credibly claimed it was €180m. I see the old media is today claiming it is €200m. Eastdil marketed the loans from January 2013, and there were 60 interested parties.
Who is the buyer? As expected Starwood Capital is the buyer. Or more accurately, one of the buyers. The NAMA statement says that the buyer is a consortium and “other members of the consortium include Key Capital Real Estate and Catalyst Capital” It is not clear if there are other members.
But there are two major surprises this morning:
(1) The buyers are receiving staple finance from NAMA to purchase the loans. Remember “staple finance” is where NAMA provides the buyer with the funding to buy assets. NAMA says this morning “NAMA will provide a senior secured loan (vendor finance) to the joint venture, with an initial loan to value of less than 60%. The loan will carry a commercial rate of interest, and is expected to be repaid within five years.”
(2) NAMA is entering into a joint venture with the consortium to manage the portfolio! NAMA says this morning “Under the terms of the agreement, NAMA will sell the loan portfolio to the new joint venture entity, which will be 20% owned by NAMA and 80% owned by a consortium led by Starwood.”
So, NAMA is getting €57.6m in cash now on my source’s information on the sale value – being €180m at 80% at 40% – , or €64m based on what the old media says today, so it is getting 7c in the euro on the par value of the loans today and an overall total of less than 25c in five years.
NAMA says this arrangement “enables NAMA to capitalise on the current robust interest from global investors in Irish commercial property assets and at the same time participate in the continuing recovery of the Irish commercial property market”
The “continuing recovery of the Irish commercial property market” is questionable. Figures released last week by Jones Lang LaSalle and IPD/SCSI showed that commercial property declined by 0.6%-1.0% in Q1,2013, this after a 7% decline in the past 12 months. Commercial rents declined by 3.2% in Q1,2013.
There will be some head-scratching as to why NAMA is actually disposing of these loans. It is providing most of the funding and retaining a 20% interest. Why doesn’t the National Asset Management Agency act like an agency and manage its own assets. Why should a US investment group be able to generate a better return than NAMA? Of course, it is joined by local asset managers, Key Capital, but is this transaction an admission by NAMA that its asset management skills are inferior to those of a relatively small Dublin asset manager?
There will also be some questioning as to the involvement of David Courtney himself in the sale. Remember, these are David’s loans. The Sunday Independent reported on 31st March 2013 that “David Courtney, a top Nama client, has teamed up with US investment firm Starwood and local finance house Key Capital to bid for the loan book”
I don’t know if this is true or to what extent it is true, but in the Dail last week, Minister Noonan responded to a parliamentary question from the Sinn Fein finance spokesperson Pearse Doherty which set out in detail the NAMA rules, and it is accepted by NAMA, according to the response, that borrowers may cooperate with potential buyers, as long as it is not “during the sales process”
Based on the experience of the sale of the €250m of Donal Mulryan loans to Morgan Stanley, it seems to be accepted by NAMA that borrowers can work alongside buyers after the sale, but this area appears murky and given NAMA cannot sell property to defaulting debtors, it seems inconsistent that defaulting debtors would otherwise derive benefit from the property.
The parliamentary question and response, referred to above, from last week is here.
Deputy Pearse Doherty: To ask the Minister for Finance following news that the National Asset Management Agency is selling large portfolios of loans which bundle together loans to a single borrower, if he is concerned that the borrower may derive a benefit from providing pre-sale advice to certain bidders.
Minister for Finance, Michael Noonan: I am advised by NAMA that it cannot preclude market participants from approaching debtors to discuss their property assets or to indicate potential interest in acquiring either properties or loans. Nor can NAMA preclude debtors from engaging with such potential purchasers. To do either would be counterproductive and could stifle normal commercial discussions in the property market and in particular could discourage international investors from exploring acquisition possibilities in Ireland. However, NAMA has very clear rules regarding the open marketing of loans or of properties on which it holds security.
As set out in response to recent Parliamentary Questions on the topic of NAMA loan sales [44286/12, 44287/12, 44288/12, 44189/12, 1549/13, 8753/13, 8754/13], NAMA has adopted a very thorough approach in line with accepted international market best practice for the sale of loan portfolios. As part of the formal sales process, potential purchasers are required to provide an undertaking that they will not engage with the debtor or other obligors at any stage during the sales process. Both debtors and potential purchasers are aware that the infringement of agreed protocols or undertakings may have an impact on NAMA’s decisions as to whether and to whom it sells a particularly portfolio. Furthermore, where NAMA approves the sale of any loan or approves the sale of any secured property by a debtor, it requires a confirmation that the purchaser is not connected to the debtor or other obligors.
Having ensured, as far as possible, that the sales process is conducted on the basis of all parties having equal access to the necessary information at the same time and that such primary sales are not made to the relevant debtors or to connected parties, NAMA advises that it has no legal right to intervene in any further future management or sales of the loan or underlying property in question post disposal.