Developers want loan interest 'rolled up'
Published 25/11/2010 | 05:00
LEADING developers, including north Co Dublin landowner Gerry Gannon, are asking NAMA to 'roll up' or defer the interest on their loans for up to five years as the property market continues to struggle.
Mr Gannon has submitted a business plan to NAMA and is awaiting approval along with several others in the so-called 'top 10' development companies. Many of these company owners have personal guarantees that NAMA could call in.
While Mr Gannon is looking for an interest roll-up for five years, it is understood some other developers have asked for even longer periods. In an interest roll-up, the interest on a loan is added to the principle, meaning the interest simply accrues and the loan becomes bigger. It eases the pressure on the borrower in the short to medium term.
NAMA has claimed publicly it will no longer grant interest roll-up arrangements. Sticking to this would deal a severe blow to the business plans of several developers.
"Effectively, we don't have time to be waiting for people to hope that tomorrow is going to be sunny again," NAMA chief executive Brendan McDonagh was recorded as saying in April.
The Irish banks were generous with interest roll-up arrangements before NAMA was set up, helping to keep some developers liquid and avoid insolvency.
But since then the practice has been frowned upon and NAMA may adopt a tough stance. NAMA is already sitting on €9bn of loans that have interest roll-up arrangements and won't want to expand this much more.
One of Mr Gannon's companies, Gatland Property, prepared its accounts on the basis of support from NAMA. "A business plan has been submitted to NAMA which provides that interest would be rolled up on the loan for a period of five years,'' the accounts stated.
"NAMA has not yet communicated its views on the business plan to the company. On the basis of the above, the directors consider it appropriate to prepare the accounts on a going concern basis,'' it said.
Mr Gannon's company took a €16m impairment in the year to the end of 2008 and made a loss of €17.1m, according to its profit and loss account. There is a deficit in shareholders' funds of the same amount. The company holds lands near Dublin Airport and, while this usually increases their value, the accounts state that such lands have "a limited catchment population''.
"In addition, there is an oversupply of industrial units and it is unlikely that a developer would buy or build speculatively on the lands'".
Ironically, the valuation of Mr Gannon's assets have been hit by the banking crisis itself. The valuer of the land, Shane Redmond Commercial, says the reluctance of banks to lend means there is little funding available for sites.