Friday 24 November 2017

NAMA challenge: The big five

Rating the major developers' chances of success with their portfolios of assets

NAMA business plans for most major developers are due within the next fortnight. Already some developers are getting working capital from the toxic loans agency.

But the fate of others remains more precarious. NAMA may liquidate some developers by September, whereas others are likely to be given a three-year time horizon to trade their way out of difficulties. But what are the challenges for the major developers, who have to convince NAMA they are still viable? Some may have to take huge writedowns on to their books, wiping out the equity in their companies. But should that be the end of them? The Irish Independent takes a close look at the largest developers and the kind of hurdles they will have to jump to survive the NAMA process. We also rate their survival chances.

Report by Emmet Oliver


Survival chances 4/5


Treasury Holdings as an unlimited company doesn't publish accounts, but pieces of information about the firm indicate it is facing major challenges, as are its bankers, among them AIB, KBC and Anglo Irish. A large amount of debt needs to be rolled over by the banks (now NAMA) this year and there is a possibility, according to auditors KPMG, it could breach loan covenants in the period ahead. It does hold sizeable stakes in fellow property companies REO (Real Estate Opportunities) and CREO (China Real Estate Opportunities) and occupancy levels in its Irish portfolio are excellent and arrears low.

However, REO owns a company called Castle Market Holdings and its balance sheet gives a sense of the kind of pressures Treasury itself must be facing into as the property market slump shows little sign of easing.

Castle Market had to take a writedown of €107m in one year alone. REO for its part must roll over €197m of debt this year, although it appears to have rolled over €411m last year with a variety of banks.

Treasury could be vulnerable to NAMA in the sense that debts will need to be rolled over in the period ahead and the company is facing "uncertainties". One of its difficulties is that some assets it owns, like the Ritz Carlton hotel in Wicklow, are haemorrhaging money, with the company behind that property, Carrylane Ltd, losing €11.9m in the last set of accounts. Its balance sheet also shows a deficiency of liabilities over assets of €12.5m.

Another major subsidiary of Treasury is Spencer Dock Development company, which has total debts of €391m. It has a set of financial projections up until this December, but it's unclear what direction it will take after this.

Trophy Assets:

Has some of the best assets in Ireland, with even NAMA itself leasing space from the company in the Treasury Building. Both AIB and Bank of Ireland lease space from the company in Ireland, and it also owns the Dublin Convention Centre and Spencer Dock and the Westin Hotel. In the UK it has the iconic site Battersea Power Station. In Russia, the company is developing a huge site near St Catherine's Palace in St Petersburg.

Public visibility:

High, too high. Co-founder Johnny Ronan is fond of issuing statements about his private life and that is likely to irritate NAMA planners. He announced in March, again in a statement, he planned to step aside from Treasury Holdings for a period, leaving his management responsibilities to other executives. However, he remains a major shareholder

Chances of survival:

A very complex company with a huge range of assets, many of them blue chip. Occupancy is good and rent roll reliable according to data produced by REO's securitisation vehicle. However, leverage is clearly very high. So far bankers have behaved benignly towards the company, rolling over debt without demanding punitive levels of interest. NAMA will have to decide, however, the company's level of indebtedness.


Survival chances 2/5


Clareman Bernard McNamara has spoken of being "broke" and of having debts of €1.5bn. However, to date he has not furnished a statement of his assets to the Commercial Court, citing concern about it leaking into the media. A group of investors are still pursuing him for €62.5m over unpaid loans used to buy the Irish Glass Bottle site in Ringsend.

The investors have claimed Mr McNamara has "extensive assets" held personally or through Irish companies and offshore companies, partnerships, joint ventures or other instruments. McNamara for his part says he may even lose his luxury home in Ailesbury Road to pay off debt. On May 4, McNamara is finally expected to lodge a statement of means, outlining his assets and liabilities.

McNamara has all along sought to ring-fence his main trading company, Michael McNamara & Co, from other difficulties in his empire. However, this company has some tough challenges ahead, one recovering value from its property assets and recovering money from the individuals and companies that owe it money. McNamara has resigned from this company, but he is still a big shareholder. This company has suffered from significant writedowns and has to deal with the long wait for payment that sometimes afflicts companies doing large projects, particularly those in civil engineering. Costs are incurred up-front, bills settled later, after the work is certified by the client.

A whole host of McNamara companies are struggling with debt and most bear the traditional "emphasis of matter'' warning from auditors, relating to the difficulties in valuing the assets. Major loans have been advanced to McNamara on a number of projects, most notably the Burlington Hotel site, where Bank of Scotland (Ireland) has a loan outstanding worth €242m. McNamara himself has sunk €40m into this site. The interest payments due on the loan were meant to begin earlier this year, but it is not clear whether this has happened or whether they have been deferred again. McNamara has been selling assets since 2008, most notably his stake in Select Retail Holdings, the owner of Superquinn.

Trophy Assets:

The Irish Glass Bottle Site hardly qualifies, but McNamara still owns the Burlington Hotel, which has the largest conference centre in Dublin, and owns the Parknasilla resort in Sneem, Co Kerry.

Public visibility:

Has kept a low profile since January when he said he was broke and his head was "on a plate". Since then he has been under pressure to produce a statement of his assets and liabilities, which he seems keen to keep out of the media.

Chances of survival:

McNamara has told friends he doesn't mind what the banks or investors take off him once he retains an ability to earn a living. However, the scale of personal guarantees he has given for loans are staggering. The big question now is whether Michael McNamara & Co can carry on long term without him.


Survival chances 4/5


Publicity-shy Joe O'Reilly is something of a mystery for NAMA, with some of his assets losing extraordinary value in the last two years, while others are eyed up jealously by other developers. His two main companies, Castlethorn and Chartered Land, are huge in scale and backed extensively by several Irish banks, chief among them Anglo Irish.

The problem for Chartered Land is its exposure to the retail sector. The company owns the Ilac Centre in Dublin city and the Pavilions in Swords. While leverage is likely to be considerable, Chartered Land is in a development phase and is trying to get several major projects over the line. Grand Canal Square is costing €300m, while Dublin Central, a mixed retail and residential development, will cost €1.25bn.

Anglo Irish are key lenders to the group and John Lewis is the key anchor tenant.

O'Reilly's other company Castlethorn Construction is more of a housebuilder, but is also the developer of the Dundrum Town Centre. As an unlimited company, it does not have to publish accounts, but its auditors BDO have highlighted the difficulty of valuing its assets in the current environment.

Support from the banks is allowing the company to continue as a going concern, said accounts for one of O'Reilly's companies recently, called Ramford Ltd. This company built the Grand Canal Theatre in Dublin's Docklands and was recently in court bringing proceedings against Harry Crosbie.

According to company filings, many of O'Reilly's firms are backed by Anglo Irish Bank, with UK lender Barclays also providing finance -- to Ramford in particular.

O'Reilly also has shareholdings in development land which has taken savage writedowns in the last year. The size of the impairments on O'Reilly's development land must be substantial and taking large impairments into the profit and loss it's going to hurt.

The Irish Independent, for example, reported last month that a 52-acre residential site in Shankill, Co Dublin, owned by O'Reilly and a group of investors put together by Davy, has been written down massively.

Investors in the project were told if the site was sold today they would get nothing back after bank debt is paid off. The Woodbrook residential site has not got full planning permission and is now likely to go into NAMA, the toxic loan agency. The investors sank €52m into the project, with O'Reilly's Castlethorn investing €38m.

Trophy Assets:

Dundrum Town Centre, with the possibility of a second phase expansion, remains one of the key retail assets in the State. The Dublin Central development planned for O'Connell Street is hugely ambitious.

Public visibility:

Almost invisible in a media sense. While he is publicity shy, he is very hands-on and likes to visit sites personally and talk to people on the ground. The low profile is likely to endear him to NAMA.

Chances of survival:

Very high. Leverage is bound to be massive, but the banks see income streams in future that are attractive if a recovery happens.


Survival chances 5/5


The largest developer in the state, Mulryan certainly has scale, but is that enough? While NAMA planners say the size of someone's empire won't prevent them enforcing security on a borrower, it is hard to envisage Mulryan running into problems. However, his financial position has deteriorated sharply due to the downturn and reports last August that he was trying to raise fresh finance came to nought.

Mulryan's entire empire is ultimately owned by a company called Ballymore Ireland Group Limited, based in the Isle of Man. One of its companies, Ballymore Properties Ireland, incorporated in Dublin, does publish accounts, however, and these shine a light on the main parent. They show that Ballymore has been able to roll over huge debts with the banks, but has taken writedowns on land bank and property assets.

Stringency has been evident at the Ballymore companies for some time, and in 2008 Mulryan put 25 racehorses and two helicopters up for sale and decided to share his executive jet to save money. Job losses have also taken place at the group. Some of Mulryan's joint ventures, including one with Paddy Kelly, called Markland, have found themselves breaching loan-to-value conditions with the banks, although this is now very much endemic in the world of developers.

Again, like Joe O'Reilly, the downturn comes at a sensitive time for Mulryan, just as he tries to expand and extract value from assets that are in the early phase of development. Apart from his Irish assets, Mulryan's portfolio is mainly centred on the UK and the Czech Republic. A UK magazine recently estimated that Ballymore has debts of about €1.5bn and said if the company folded it would "devastate" London's Docklands. However, this drew a sharp rebuke from Ballymore chief executive David Brophy who said the company had cut its debt and extended its maturities.

The financial year-end for Ballymore was late March and it would seem that re-financing what it calls "significant levels of debt'' has not been a problem. Asset sales of course have helped, with the company flogging 4.5 acres in Battersea, London and its Snowhill project in Birmingham for £126m. Ballymore will have to convince NAMA it can monetise its huge asset base, but it may find it has to reduce debt levels below a certain agreed threshold, which may mean further asset sales in the UK.

Trophy assets:

The site of the new US Embassy in the UK at Nine Elms will be an architectural gem. Spitalfields Market is one of London's most well- known, and unconventional, shopping venues.

Public visibility:

Not one for courting public attention, former bricklayer Mulryan is most comfortable in the racing world. He has also made donations to Fianna Fail, which has put him in the public eye.

Survival chances:

Very high. The scale of Mulryan's empire is extraordinary, with his London holdings as large as many of the biggest UK landowners. The company has been reducing costs and reducing debt, which is likely to please NAMA. However, the sprawling diversity of Ballymore may come under scrutiny and the company may be forced to sell assets to pay down debt.


Survival chances 3/5


Unlike developers like Mulryan and Treasury, Gerry Gannon's huge exposure to Ireland puts him in a weaker position in relation to NAMA. Already offers have come in for his 49pc stake in the K Club, but contrary to press reports, this stake was not put on sale to appease NAMA. However, the sale is believed to be part of an attempt to get debt levels down.

Gannon's chief Irish company, Gannon Homes Ltd, made a loss of €13.6m in 2007, and even that early in the property downturn was writing down its stock of land and property by €15.6m. At that stage Gannon was sitting on property and land stocks of €152.1m and a generous cash pot of €20.6m and reserves of €4.8m.This provides some protection from the writedowns, but 2008 and 2009 must have dented the company balance sheet further.

The company has been doing the kind of things NAMA likes, like renting out unsold units to bring in some revenue and trying to bank up planning permissions, making the lands more valuable. However, the position is precarious in the current environment. "It is possible that the company's banking facilities may not be renewed or may be renewed on different terms," said Gannon's auditors in October.

The equity in Gannon's investment company Erkindale was still intact in the last set of results it issued, which covered 2008. However the personal exposure of the Howth-based developer was clear as he was providing guarantees over bank borrowings of €5.3m, although these were also secured by a floating charge.

Gannon Homes wants to realise value from its land bank, but at present this would only involve triggering a huge writedown on book value.

As a landowner in north Co Dublin, asset writedowns or impairments would have hit Gannon hard, but banks, including Anglo and Irish Nationwide, have remained supportive. The problem is the company's development land exposure is considerable and a generous uplift would be needed to being the most recently acquired lands back into positive territory. How much uplift is only known by NAMA.

Trophy assets:

The K Club was the asset, but it's gone up for sale as Gannon tries to reduce debt. It once hosted the Ryder Cup but that doesn't pay the bills.

Public visibility:

Low, although recent skirmishes with Dr Michael Smurfit have reached the papers. Not doing anything to irritate NAMA planners and no sign of outward wealth.

Survival chances:

Will need to convince NAMA that a group of assets scattered across north Dublin can realise value if given a sufficiently long timeframe.

Irish Independent

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