Thursday 23 November 2017

Nama's board is right to leave all the risky property plays to the flash boys

NAMA Chairman Frank Daly at Treasury Buildings.Photo: Tony Gavin
NAMA Chairman Frank Daly at Treasury Buildings.Photo: Tony Gavin
Richard Curran

Richard Curran

John Caudwell is typical of the kind of super rich individual who stands to benefit from the disastrous boom era lending policies of Irish banks, along with the disastrous borrowing policies of some of their customers.

Now worth around £2bn Caudwell sold his Phones4u mobile phone business at the height of the boom in 2006 and bagged around £1.4bn. He had built up the company from scratch to 8,000 employees. Since then he has become a significant property investor who enjoys his wealth.

He is doing up his home in Cap Antibes, has a 65-room mansion in Staffordshire and is building on of the biggest homes in London. Caudwell was the purchaser of a car park and hotel in South Audley Street in London for around £160m from a group of banks including Nama. A company backed by Derek Quinlan had bought the site and Caudwell plans to build a new luxury apartment block on it that could be worth around £1bn.

Most recently he has emerged as the purchaser of Le Provencal Hotel, in Juan Les Pins in the South of France. It is a derelict hotel building that has been empty for 45 years. Irish Nationwide lent British property developer Cyril Dennis around €50m to buy it at the height of the boom.

The price Caudwell paid for the place is not known but it seems reasonable to assume the Irish taxpayer has taken a multi-million euro hit on it.

Caudwell, who likes to wear Versace everything - from shoes and trousers to shirt and watch - plans to build several luxury apartments at Le Provencal, following a massive multi-million euro build over the next four years.

To be fair to Caudwell he has worked hard for what he has, having grown up in Stoke where is farther had suffered a stroke when Caudwell was 14. His father died when the young entrepreneur was 18 leaving the family in penury. Caudwell has raised millions for charity and says he plans to leave £2bn to charity in his will.

But it raises the question, should Nama not make the £1bn from the London apartment block or the restoration of the Cote Azur luxury hotel to its former glory?

Given some of the criticism the agency has faced in recent months, from former clients like Johnny Ronan, politicians and others, some people seem to think Nama should be involved in these potentially lucrative, but somewhat speculative and expensive property plays.

Nama chairman Frank Daly has been on the end of so much criticism in recent months for allegedly selling too many assets too cheaply, that he had to address the issue at an international conference. Daly said he does not understand the view that those to whom Nama sells properties should not make a profit on future sales. And he is right.

Nama was a €30bn property risk that rested on the state's books. I know that technically it didn't sit on the state's balance sheet, but in reality everybody knows the state would have to step in to cover any losses the agency might endure.

Today it is a €10bn risk, as around €20bn of its debts have been repaid. Some people want Nama to stick around long enough to make the most money for the taxpayer from its assets, while at the same time believing it is choking the property market and an albatross around the necks of the nation.

Nama has done 9,765 individual transactions, involving over 40,000 property units in the last five years. Of course it won't get everything right. But selling things quickly has done a number of things at different junctures in its relatively short history.

Initially it helped get the property market moving in Ireland. Then by selling UK assets it helped Nama pay down debt more quickly and de-risk the state's exposure to so much property in so many jurisdictions.

Of course some people are going to do well out of it. Of course some international investment funds, like Kennedy Wilson, Starwood, Lone Star or developers like the Comer brothers, will make money.

But they are risking money to make money. That is the nature of the business. All that Nama can do is take the best professional advice, try to time its sales appropriately and ensure there isn't any fraud going inside the organisation.

The agency gets independent expert valuations done on everything it sells. Most of its sales are done through open market. Yes there have been examples where people have bought asses from Nama and then sold them on at a profit, including the One Warrington Place building in Dublin which was flipped at a profit in less than two years.

But others have done similar deals buying assets from distressed sellers or banks that have nothing to do with Nama. The Livingston brothers bought the Four Seasons Hotel in Dublin in 2011 for just €15m. The 200-room hotel had debts of €50m which were written off by Anglo Irish Bank. It is worth a multiple of that now.

Wilbur Ross made a killing on Bank of Ireland shares effectively tripling his money by buying the stock at 9c and selling around 27c. Other investors, like Dalata Hotel Group, have bought hotel assets at excellent prices from different sellers, because Dalata is willing to take a risk and hope to create value from them.

This is what happens after a crash. It didn't begin and it won't end with Nama.

Bear in mind Nama cannot sell an asset to any of its borrowers at a discout, by law. Third parties are free to do this.

That is not to say there aren't issues with Nama. A lack of transparency from the beginning has shrouded the agency in too much secrecy.

The public should have been given a list of assets acquired, at what price and then sold at what price.

This would not have played well with buyers but many have done so well out of the process they probably would have gone ahead anyway.

At times the agency has appeared to be in too much of a hurry such as the case of the sale of Project Eagle, the Northern Ireland property portfolio.

This involved the sale of 794 loans with 55 borrowers covering 4,000 properties. The original loans had been for around £5bn and were sold for around £1.2bn.

One of the bidders, Pimco, disclosed that a former member of Nama's Northern Ireland Advisory committee, was due to receive a success fee of £5m if Pimco clinched the deal. He had already left the committee but was working in a consultancy role with Pimco on its bid.

Nama pushed for a withdrawal of Pimco from the process but should really have stopped the whole sale process. Public disclosure of any kind of the existence of that conflict would have changed the entire tone and direction of the sale process and it could have been done in a better way, at a later date.

Could Nama have held on to assets for longer and got better prices? In some cases, yes and in others, we simply don't know. It is easy to make fantasy investment decisions based on 20/20 hindsight.

As for luxury investments like Le Provencal Hotel in the Cote d'Azur, or the car park at Audley Street in London, it would be ludicrous to expect a state agency with Nama's remit, to put billions in risk capital behind enormous vanity property plays.

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