NAMA's Dublin development plans are a risky deal
The Right Moves
THE announcement that the National Asset Management Agency (NAMA) is transforming into a developer of swathes of Dublin city and is also charged with solving the capitals housing crisis, is ambitious and fraught with risk.
NAMA has certainly proven itself competent but the world of property development is a far cry from a process of re-selling assets handed to you at fire sale prices.
NAMA can provide finance, which is the main factor preventing development, but risks arise from embedding a state agency in development.
A big practical problem for NAMA will be manpower.
As the market recovers NAMA has been losing staff back to the private sector and having difficulty replacing them.
There is no more time intensive part of the property business than the development process and that is why developers have development experts, often recruited after gaining experience as estate agents.
With the estate agents short of staff, NAMA are going to find it extremely difficult to attract top people, even if they enhance their packages, and particularly as the agency's remit is short term. In joint ventures NAMA can avail of its partner's manpower, but if NAMA is to plough billions of taxpayers' money into property development, then it is going to need a lot of development expertise to manage all that.
A key objective for NAMA now is to ensure "the timely delivery of key grade A office space" in Dublin (government seem to have been saying that for a long time now).
I did an appraisal of a notional office development in this column last year which indicated that speculative office development was profitable. Rents have been rising since then, yet there are still no cranes on the skyline.
And that underlines one of the problems - property development is a slow and long term game, and the more people you involve, the slower it will get. The fastest way for NAMA to get offices built is to sell sites and lend developers money.
Another issue for NAMA is how much risk they are willing to take on.
The state bad bank would ideally like to see pre-lettings in place before advancing funding but in half a centurty of office development in Dublin there have only been a handful of pre-lettings of buildings (Citibank's HQ on North Wall Quay being one.) Smaller retail units and apartments can't be pre-let either so NAMA is going to have to commit large amounts of public money into speculative development in a risky, small and recovering market.
Months ago I wrote about the growing conflicts of interest for NAMA in docklands, where the agency has interests in competing sites and under the new strategy that problem will multiply.
The agency will be assembling sites and negotiating with receivers it appointed on other sites.
NAMA buildings will be competing with each other for the same occupiers. Which NAMA building will be preferred for the next incoming IDA project? NAMA previously said that it would deal with these issues with "chinese walls", but in this new role, NAMA will have more Chinese walls than a Bejing apartment block.
And what about developers and landowners in Dublin that aren't "in NAMA"?
They are at a big disadvantage now in competing with the clout of the state agency- not least its access to the cheapest finance in the market.
I foresee a whole pile of trouble ahead for NAMA under the heading of "conflicts of interest."
The test of all this will be NAMA's ability to deliver infrastructure and buildings but the state's record in delivering these is deplorable.
The National Childrens' Hospital is an example and the state spent the guts of a a decade and a half trying to produce a National Convention Centre in the city's docklands.
The majority of projects are delivered years late and over budget.
Combining state bodies with the private sector is no guarantee of efficiency - you only have to look to the Garth Brooks debacle to see what can go wrong with these projects - and there will be real doubts over NAMA's ability to deliver the goods.
Just to make matters worse, joint ventures are a recipe for the High Court.
Over the years many state body and private sector joint ventures have ended in dispute. There is little to make that trend change when it comes to future development plans.
The Dublin Docklands Development Authority (DDDA) did a lot of good work but also made some disastrous mistakes.
Does the state really need to risk repeating those, especially as docklands already has critical mass?
The combination of public ownership of swathes of docklands and a fast track Special Development Zone (SDZ) planning status has huge potential.
NAMA should make funds available until the banks return to the sector but leave development to the market and the planners.