Agency controls 4pc of hotel sector after transfer
The transfer of the second NAMA tranche is complete and finally the taxpayer gets some clarity on the kind of assets which have been purchased.
As expected, investment properties represent the lion's share of the second tranche, but what marks out this tranche is the large number of hotels which are being transferred.
Some 23pc of the second tranche are loans secured on hotels, according to NAMA figures. Between tranche one and tranche two, some 48 hotel loans are now in the possession of NAMA, with 35 in Ireland and 13 overseas.
Based on figures from Failte Ireland, this means NAMA is now controlling almost 4pc of the entire Irish hotel stock. In fact, this figure, as measured by number of rooms, could be even higher.
With the sector suffering from huge overcapacity, one wonders how NAMA is going to manage these loans and the assets underlying them.
The performance of these loans is not known, but a large number would be non-performing.
NAMA's options in relation to individual hotel loans would appear to be limited. Clearly, NAMA at this point does not have the expertise to run the hotels itself and while it can help the cashflow at the various properties by cutting room rates, this will only impact on the sector generally, forcing other hotels into difficulties.
In many cases, the hotels now ultimately controlled by NAMA are luxury properties, financed over recent years by leading developers. A number of the top 10 developers own hotels, either directly or through companies they own.
It is not known which of these developers are in default on their loans, but we do know about the financial difficulties at several of their properties.
For example, the Ritz Carlton in Wicklow, owned by Johnny Ronan and Richard Barrett of Treasury Holdings, is losing €12m a year, according to its last set of accounts.
It is also a tough time for another developer, Bernard McNamara, who controls the company behind the Burlington Hotel, where talks between McNamara and Bank of Scotland [Ireland] are described as ongoing.
As NAMA prepares a strategy to return value from the hotel assets, the second-tranche figures also give a sense of the poor quality of many of the loans from Anglo and Irish Nationwide.
Irish Nationwide and Anglo are taking discounts of 62pc and 72pc respectively on their second tranche loans, a damning indictment of the previous lending decisions of their executives.
Anglo, for example, is moving over loans nominally valued at €6.75bn, but NAMA estimates the market value of these loans at only €2.59bn.
Sources told the Irish Independent that the drop in commercial property prices is not the only factor in the difference -- poor and inadequate security is also relevant to the scale of writedowns compared to the book value of these loans. Similar issues arise at Irish Nationwide.
Despite this, NAMA is prepared to give Irish Nationwide and Anglo the benefit of the doubt, in the sense that NAMA is paying 10pc more than the current market value for these loans.
This overpayment is the famous "long-term economic value" that the whole NAMA exercise is based upon.