Wednesday 22 November 2017

NAMA, banks need new way to tackle 'insolvent' apartments

Report recommends selling entire complexes to international investors to solve problem

Emmet Oliver, Deputy Business Editor

NAMA and the banks will have to sell whole apartment blocks to international investors if they want to deal with the problem of "insolvent" developments that litter Dublin, a new report has said.

NAMA, which is already considering the idea, would have to accept a discount of 15pc when it sells apartments to so-called bulk buyers, property specialists CBRE said.

It is the first company to do detailed work on the idea, which NAMA has taken up in recent weeks. The firm said apartment blocks built in Dublin towards the end of the boom were down by 50pc from the peak, rendering most of them insolvent.

Developers, NAMA and the banks were reluctant to sell at these prices because of the losses that would be triggered.

The easy option is to rent them out, said CBRE, and use the income to keep the loans behind them performing.

"However, this is not sustainable in the long term," the company said, adding that there were not enough private investors or owner occupiers to make inroads into all the stock of apartments.

It suggested that other options should be considered and said that selling an entire apartment block had many attractions.

"The logistics of a single sale are much more streamlined than a multitude of sales to a disparate group of private buyers, with a resultant cost efficiency," said CBRE. "As there are a number of these investors it may be impossible to generate competitive bidding and hence a price premium."

The note -- written by two senior executives Sean O'Brien and Marie Hunt -- said the downside would come, however, in the area of price.

"Traditionally a bulk sale of an apartment development, or a substantial part of it, would attract a discount of up to 20pc of the value based on individual sales," they said. "In the context of an already-built scheme, a discount of 10-15pc is more appropriate."

As is now key, an outside buyer is also likely to have more access to outside funding.

Deals of the kind envisaged by CBRE have already been mooted. It was recently reported that the Alliance Building in Dublin's Gasworks scheme was to be sold to a single investor for more than €35m.

Brendan McDonagh, NAMA chief executive, told the Irish Independent recently that the agency was developing plans to sell entire apartment complexes -- but such sales were better undertaken with tenants already in place before the property was sold on.

Irish Independent

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