Odd mix looks set to end up in Nama pot
Apart from loans over acres of development land, Nama could end up with lots of other unexpected assets as security, says Louise McBride
THE number crunchers at the National Treasury Management Agency (NTMA), charged with setting up the National Asset Management Agency (Nama), will be hard at work over the next few months.
Last Monday, AIB, Bank of Ireland, EBS, Irish Nationwide and Irish Life & Permanent handed over details of the top 50 developers and their loans to the NTMA. Once set up, Nama will take over about €90bn of loans from those five banks, as well as from Anglo Irish Bank, which was nationalised earlier this year.
What many people don't understand is that -- leaving aside the inevitable bad loans -- a large percentage of the loans will be good, and will include those secured on development land and property under development. Associated loans secured on investment properties which were provided as security for property developments will also be thrown into the mix.
About one-third of the loans to be handed over to Nama were taken out to buy land, and one-third are for developments in progress which have not yet sold, according to a well-placed source. The final third are for projects which have already been completed and are likely to generate income for the bad bank.
As Nama will need security for these loans, a raft of properties and land banks could find their way onto its books.
"Many developers will continue to service their loans so Nama wouldn't have to take over any properties that such loans have been secured on," said the source. "But for some developers who fail to service their loans, Nama may have to take over some of their assets."
As Nama is expected to take over any eligible loans over €5m, it's hard to imagine any development loan which won't make its way there. "A €5m threshold would mean that a substantial number of properties that have loans secured on them will be transferred over," said John Glennon, managing partner of business advisers Baker Tilly Ryan Glennon.
So what could find itself in the Nama pot?
Windy City SPIRE
Almost three years ago, Shelbourne Developments struck a deal to build one of the tallest buildings in the world, the Chicago Spire. Construction of the $1.2bn (€950m) tower -- expected to reach 610 metres -- began in summer 2007.
When the ambitious plans were announced in 2006, the company said the tower would be "the tallest free-standing structure in North America and Europe, surpassing the Sears Tower in Chicago and the CN Tower in Toronto, Canada". However, the credit crunch has stopped the tower in its tracks. Construction of the tower, which was initially due to be finished by late 2010, has been on hold since late last year "until the market improves", according to a spokeswoman for Shelbourne. The spokeswoman said the tower is still going ahead and that 40 per cent of the apartments have been sold.
However, the latest pictures -- which show that the tower is currently little more than a hole in the ground -- are unlikely to be much comfort to Anglo Irish Bank, the key backers of the project. Shelbourne paid about $64m (€51m) for the Spire site about three years ago -- and this paper understands that most of this money came from Anglo. Neither Anglo nor Shelbourne would say whether Shelbourne has paid Anglo back its loans for the Chicago Spire. As this project is only a couple of years old, chances are Anglo hasn't got its money back -- and that the Spire could make it into the mix of properties that loans heading Nama's way are secured on.
As Arnotts' upcoming flagship store on Henry Street is still being developed, any multi-million loans taken out from Irish banks to finance the project could easily make their way to Nama. The bill for the new development -- known as the Northern Quarter -- could hit €1bn. Brunner Limited, an investment vehicle largely owned by the Irish investment firm Boundary Capital, bought 45 per cent of Art Holdings, the new holding company for Arnotts, for €65m in September 2007.
Boundary, which is led by the financier Niall McFadden, invested €40m for an indirect 28 per cent stake in Arnotts. Boundary also teamed up with Anglo to invest €25m for a 17 per cent stake. Boundary used €11m of its own resources, as well as a €29m loan, to fund its part of the deal. The development, which is expected to be finished by 2011 and open for trade in 2012, will include 47 new shops, 17 cafes, restaurant and bars, 189 apartments and a 152-bed four-star hotel.
The tallest residential tower in the country, the Elysian in Cork, opened its doors last September. The €150m tower was built by Cork developers O'Flynn Construction. The tower, which is 71 metres high, includes 211 luxury apartments with penthouses priced at €2m. A spokesman would not say which banks financed the tower. However, accounts for O'Flynn Construction show that Anglo, AIB, Bank of Scotland and Ulster Bank are used by the company. The spokesman would not say whether or not the finance for the tower had yet been repaid but when asked if the loan could go to Nama, he said: "Any loan above €5m is going into Nama.
"So you could name any development or shopping centre down here in Cork."
Harrods owner Mohamed Al Fayed could be the last person you'd expect to see in the Nama pot. But with Irish Nationwide bankrolling Al Fayed's Premiership football club Fulham, his companies could easily be in the mix.
Craven Cottage -- otherwise known as Fulham Stadium and owned by Al Fayed -- took out mortgages with Irish Nationwide last year.
As these loans are less than a year old, chances of them being repaid already are slim.
Irish Nationwide also lent almost €22m to Craven Cottage in 2002 for development work on the famous old football ground.
Italian ski resort
The Dublin company behind Prajelato Village, a €100m five-star ski resort in northern Italy, went into receivership last April. The company, Irish Italian Property Holdings (IIPH), is backed by Paddy Kelly, businessman Alastair Tidey, and a number of other investors. Anglo Irish Bank lent money to IIPH, which is believed to have borrowings of more than €76m.
Nama has not yet decided whether or not it will take the loans of companies in receivership onto its books. But with Kelly being one of the top Irish developers, it may not have a choice on this one.
Four years ago, Michael Smurfit and Gerry Gannon bought the K Club for about €115m. Under the deal, the businessmen also acquired the former Jefferson Smurfit paper factory in Clonskeagh. Irish Nationwide lent money to Bishopscourt Investments -- which now owns the K Club -- to help finance the deal.
Nationwide would not say whether or not the K Club loan had yet been repaid and calls to the hotel's director of finance were not returned.
Blackrock International Land, the Fyffes property spin-off, lost €78.8m last year after the value of the properties it owns fell by a third. The group, which has invested in property in Ireland, Britain and continental Europe, has net borrowings of about €174m.
Irish loans and borrowings come to about €31m. In its latest annual report, which was published last month, the company said: "The board is cognisant of the potential for further declines in property values while the current period of uncertainty continues and, accordingly, it is discussing with its lenders a new three-year facility [loan] to strengthen the group's financial position going forward."
Among the development land owned by Blackrock are a development site in Swords Business Park, and agricultural land in North Dublin.
Ballymore Properties, which is headed up by Sean Mulryan, is behind developments planned for London's Docklands. It also spent about €155m buying a Berlin property in October 2007.
Company accounts show that Anglo Irish Bank and Irish Nationwide are key lenders for Ballymore. If either bank financed Ballymore's foreign developments, loans for some properties could make their way to Nama.