Saturday 21 January 2017

Nama's property losses head for €1.3bn

The agency expects a huge writedown on its distressed properties, on top of a reported €714m loss for the year, but there are positives, says Neil Callanan

Published 08/05/2011 | 05:00

NAMA reported last week that it expects to take a writedown of €1bn on its property loan portfolio for 2010, but government sources have told the Sunday Independent that the final figure could be as much as 30 per cent higher by the time the figures are signed off.

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The agency's unaudited accounts showed a loss for the year of €714m and the outlook for this year remains negative -- last week Lloyds predicted a further 10 per cent decline in commercial property prices in Ireland this year.

There are some positives for the agency, however.

Nama is gearing up to offload a significant part of its UK portfolio at the right time. There is a huge shortage of prime property for sale in London, despite the fact that nearly £50bn of capital is chasing product there.

That means we're in mini-bubble territory and the agency will aggressively seek to reduce its portfolio there, particularly while the UK banks prevaricate about whether or not to flood the market with their own distressed property portfolios.

The official line is that Nama will sell €2.5bn worth of property in the UK by the end of 2013, but analysts would not be surprised if the actual figure realised is between €4bn and €5bn.

The agency has also shown a willingness to lobby on legislation that will make it easier for it to make a profit over its 10-year lifetime.

Chief among them is in relation to the government proposal to allow retrospective rent reviews. If introduced, it would slash the value of Nama's Irish portfolio by up to €2.25bn. The agency aggressively lobbied against the move last year, but has since toned down its language, instead asking that a decision be made quickly one way or the other as the demand for investment property here is virtually zero until a decision is made.

Contrary to speculation, it is also pushing forward with plans for Real Estate Investment Trusts which would allow it to move large numbers of residential properties. This will require changes to existing legislation, and foreign advisers were in Nama's headquarters last month to discuss the agency's options in relation to it.

Another move by Nama involves Staple Financing. I may sound strange, but it's actually quite simple: I give you the finance to buy an asset off me. The great thing for Nama is that it already owns the asset in full so the loan is notional only.

So let's say Nama sells an asset to a fund for €100m. The fund pays a €30m deposit and agrees to repay a €70m loan from Nama, along with interest of 5 per cent a year, after five years. The interest means Nama will have received €120m for the asset after five years, 20 per cent more than if it had just sold it on.

Nama has also quietly engaged in creditor stabilisation, meaning it has been giving working capital to developers, where appropriate, to ensure that they can pay the workers down the line -- the likes of electricians, contractors and so on -- so they do not take legal action against the developer.

This has kept a number of small businesses going, particularly in the case of sole traders, and created extra work for them in finishing out projects where otherwise there would have been none.

Nama has also been struck by a number of negatives, although some of it was caused by incompetence at the banks and also among the politicians.

The agency was set up to get the banks lending again by removing toxic property loans from their balance sheets.

Unfortunately, there was no recognition that the banks were completely lying about their loan books. Nama has provided more than €30bn on liquidity to the banks, but the Central Bank and ECB is providing them with €180bn of emergency assistance.

The fault, therefore, does not lie with Nama -- but with the banks and the previous government, which had no idea of the scale of the banking problems when Nama was initially thought up.

Nama's main actions in the Irish property market to date have been funding the completion of the National Conference Centre and the Montevetro office building, since sold on to Google. But that's not enough for new Minister for Finance Michael Noonan -- he's told the agency to put properties up for sale all over the country and to do so quickly so that the market starts moving again. Whether the buyers are out there is another question.

A number of developers are furious that some of the property advisers they blame for their downfall are getting large amounts of work from Nama. The developers argue that the advisers convinced them to develop empty shopping centres in completely unsuitable areas, ensuring their demise once the downturn came.

Nama's response is said to be that it's easy to blame somebody other than yourself if there's a problem. The quality of some of the staff hired by Nama has also been questioned, while eyebrows have been raised at the fact that some of the partners at companies on its professional advisory panels are themselves customers of Nama.

The agency is set to move on five more developers in the coming weeks, with two actions likely to be taken as soon as next week. The question is whether Nama is moving on the right developers at the right time.

One developer with significant debts and little hope of repaying them asked the agency if they could sort out his problems over a coffee.

Another is said to have been caught underdeclaring his assets. Action has yet to be commenced against those developers even though they should probably have been the first to go.

Sunday Indo Business

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