Saturday 24 February 2018

Nama developers face block if trying to buy back assets

Is Nama getting it wrong – and costing the taxpayer millions in the process? Roisin Burke investigates

Roisin Burke

Garrett Kelleher spent this past week locked in a battle to regain control of the jewel in his former property empire crown.

Though neither Kelleher nor his lawyer would comment, the Sunday Independent has learned that sources claim that Kelleher had brought in an investor that offered Nama €69m to buy the debt attached to the Chicago Spire – the stalled Calatrava-designed super-skyscraper project.

Data-centre mogul Andy Ruhan, who has extensive US real-estate interests and is currently involved in a number of super prime high-end developments in Manhattan and Miami, reportedly met with Nama. His company, Bridge Capital, was allegedly willing to bid at this level "because he was aware of the value of the project and knew that Shelbourne's involvement and intellectual property were required", a third party claiming to have knowledge of the situation said.

"The proceeds of this project would be sufficient to repay any deficiencies there might be in the Shelbourne Irish portfolio," they added. "This has been pointed out to NAMA at the highest level to no avail."

Instead, Nama sold the Spire loan to property billionaire Stephen Ross's firm Related for €27m – a stinging discount on what Kelleher's party were reputedly prepared to pay and just 38c on the outstanding debt – and, if there was substance to the offer, what amounts to a €42m bath for the Irish taxpayer.

It should be said that Nama has come out strongly in defence of its position on this.

"The Spire loan note sale was an open market process and the successful bidder was the one who made the highest offer and who could demonstrate proof of funds," Nama's spokesman said. "The suggestion that there was an offer of €69m for the note is ludicrous – if there were, Nama would have taken it."

Kelleher and Shelbourne put over €154m of their own funds into the project. At peak the enterprise value, i.e. the potential takeover price, was around €460m with €42m of debt – not particularly overleveraged or crazy.

Kelleher had also cracked a further fundraising avenue, having won accreditation for the project from US Homeland Security for an investor visa programme that would allow Chinese and other foreign investors to become involved.

"The project made enormous sense – most would say they were very unfortunate with our timing," Stephen Ross, a seasoned developer of prestige projects including the Time Warner Center skyscrapers in New York, appears to agree.

Nama developers are excluded by law from being involved in buying their own debt at a discount.

And on the face of it, the rationale behind this decision is reasonable. Why should those who racked up millions or billions of borrowings they can never pay be allowed to get back their interests at bargain rates?

Arguably, one answer is, because if they don't, others, usually big overseas bargain scavengers, will at big, fat, marked-down discounts and further exchequer disadvantage.

With the liquidation of IBRC and the imminent sale of €16bn or so of loans, the argument that those with decent track records who know their assets best should have a shot at involvement and in the process maximise taxpayer return will get louder.

It's easy to see why that would stick in the craw of the public and provide Nama with a major optics and moral hazard concern, and it has been raised in Dail Eireann.

A planned sale of loans related to midlands developer Eamonn Duignan was said to have been parked partly due to concerns about developer involvement with possible bidders (though Duignan says he merely met various interested funds, he isn't working with anyone).

But in some cases the policy may make bad business sense in terms of maximising return on loans and assets for the State.

Treasury tycoons Richard Barrett and Johnny Ronan took their fight on its loans to court. One of Nama's biggest clients, with €1.7bn of loans connected with assets like the Ritz Carlton and prime Dublin docklands buildings, Treasury would say that calling in the loans was a major Nama misstep.

Nama would argue that Treasury was hopelessly insolvent by the time the agency pulled the plug. It has been widely reported that extensive discussion with Treasury took place in relation to business plans.

A former senior Treasury executive has said that Nama's move against the developer "destroyed value". Property had been sold and let, the Montevetro building went to Google for €100m and income streams were coming in.

Said Nama's rep: "As for the suggestion that Nama might be destroying value – utter nonsense presumably made by someone who would prefer the taxpayer repays his debts rather than he/she does."

Treasury had managed to get two separate prospective buyers, Macquarie and Hines, to bid for its entire portfolio. It's understood that both proposals were close to what Nama paid for Treasury's loans on transfer. "Nama refused to engage," we're told. (Though it has also been said that both offers hinged on Nama finance – a possible deal breaker).

It was Treasury that originally brought in the Malaysian buyer of Battersea Power Station – the iconic London landmark that was officially launched by British Prime Minister David Cameron last week. Eventually Nama sealed a sale – but without Treasury.

Nama's developer involvement lockout won't stop those with value to add being involved in the sale of their own debt.

Donal Mulryan, a respected player who once controlled a €1bn portfolio, worked with Morgan Stanley when it bought his company's €65m British development loans from Nama.

Developer Sean Reilly has hooked up with Anchorage on the purchase of his €300m loans on Dublin city offices and development land.

David Courtney was connected with the selling of €810m loans sold to US fund Starwood Capital Group and Key Capital with Nama keeping in for 20 per cent.

Whatever Nama's policy, there will be more of this involvement as IBRC sell-offs ramp up. US funds can't manage projects in Dublin from Manhattan. They know it makes commercial sense to have people with the most intimate knowledge of the assets and environment involved.

But some of Nama clients are tiring of banging against a brick wall, as they would see it. "The vast majority of developers have left Ireland," says one exasperated big bad-bank customer.

"With very few exceptions, every developer has tried to work with Nama and has submitted business plans with a view to maximising the recovery for the State."

He added: "Individuals like Bernard McNamara, Ray Grehan, Johnny Ronan, Garrett Kelleher are all very bright, talented, hardworking, self-made men who have enormous international experience and relationships in real estate – far more than any individual in Nama – they have been run out of Ireland."

Said another: "There have been highly damaging tapes of what happened five years ago in recent weeks; it will take another five years before the revelations of the destruction of value by Nama to surface."

Meanwhile, Kelleher still owns the title to the two-acre Spire site. And he's not about to give up the fight. Not by a long chalk. Reports that he is in talks with Related are not correct, we hear.

Irish Independent

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