Tag Archives | National Asset Management Agency (NAMA)

Why distressed property in Ireland is unlikey to ever change hands?

We’re seeing some amazing changes within the Irish property market – NAMA, bank nationalisations, bank bailouts, developers going bankrupt, builders being liquidated, and tycoons fleeing the country.

Right now, it’s like everything has been thrown up in the air, and we’re waiting to see where they’ll land once things (eventually) settle down.

This distressed property is moving between developers, banks, and NAMA, round and round, and where it stops, nobody knows.

However, it’s my prediction that none of this distressed property that’s nominally moving hands between all those players now will end up being owned by anyone other than the original owner before all this began.

The Field

Have you ever seen “The Field“? Do I need to say any more?

It’s happening already:

  • Example 1 – Farm of 67 acres draws just €1 bid as hostility sinks auction

LOCAL ANTIPATHY torpedoed an auction of 67 acres of farm land at Crossakiel, near Kells, Co Meath, yesterday.

The land was up for sale by a receiver appointed by ACCBank but it attracted one bid of just €1. Farmers who attended the auction indicated they did not want the land sold.

THERE WERE heated scenes at a public auction in Co Donegal yesterday when no bidder emerged for 47 partially completed apartments that failed to make the reserve of €550,000.

There was a Garda presence outside the premises with about 100 builders and subcontractors attending the auction in Jackson’s Hotel, Ballybofey. Former workers on the site protested outside.

  • Example 3 – Investors find Irish market shut

FUND manager Josh Brayman visited Ireland earlier this year with a chequebook, ready to snap up bargains in the Irish property market. A few months later, he left frustrated and empty-handed to hunt for deals elsewhere. He’s not alone and he blames NAMA for his problems.

More and more investors are circling the commercial property market here but they can’t seem to seal the deal.

Property Developer Black Sox

Back in April 2009, I wrote how NAMA was an ingenious way for Fianna Fail to help their property developer buddies back on their feet at the tax payers expense, How NAMA is the perfect solutions for property developers to come up smelling of roses, again.

In that post, I wrote about a (still very likely) way for property developers to use NAMA, the banks and the government to get refunded and to get back into the property market again.

One premise of that theory is that the developer would be able to by property at less than not only the book value, but also less than market value as well.

And how will they do this?

Tactics used in the above examples will be employed to “discourage” other people other than the original owners from buying back the property. More, I think it’s very likely that the “property developers union” has already arranged an agreement that no property developer will buy from NAMA or the banks any property previously owned by any other union member.

By NAMA being sluggish to facilitate purchases of Irish property by outside interests, it’s like there’s a little bit of insider help going on as well.

So, you’ll never see Bernard McNamara buying any property from NAMA that was previously owned by Liam Carroll, and vice versa.

Below cost selling

With such agreements in place, and with NAMA supposedly keen to sell the property on their books in order to supposedly make some money on the taxpayers behalf, the property could very likely be sold at below cost.

Why? Because there’ll only be one bidder for each property being sold. The original owner!

1

NAMA in a nutshell?

This e-mail went around last week, so some of you may have seen it already. It’s being described as “NAMA in a Nutshell”:

It is the month of August, on the shores of the Black Sea. It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit. Suddenly, a rich tourist comes to town.

He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs in order to pick one.

The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher.

The Butcher takes the 100 Euro note, and runs to pay his debt to the pig grower.

The pig grower takes the 100 Euro note, and runs to pay his debt to the supplier of his feed and fuel.

The supplier of feed and fuel takes the 100 Euro note and runs to pay his debt to the town’s prostitute that in these hard times, gave her “services” on credit.

The hooker runs to the hotel, and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.

The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything.

At that moment, the rich tourist comes down after inspecting the rooms, and takes his 100 Euro note, after saying that he did not like any of the rooms, and leaves town.

No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism.
And that, ladies and gentlemen, is how the Government is stimulating the economy.

3

NAMA. Some worthwhile reading.

I wrote back in April what my thoughts are with regards to how NAMA might actually be a good thing for some developers.

With the recent publication of the NAMA legislation (actually more like a wish list rather than legislation) by Minister for Finance, Brian Lenihan, one headline that did catch my eye was this from the Irish IndependentLenihan: Property won’t be bought back at discount.

The start of the article went as follows:

Mr Lenihan said the Government had the right to restrict certain individuals from acquiring land from NAMA.
“Yes, we will have the powers to preclude certain buyers, and, yes, it will be my intention to exclude the persons who brought us to this hazardous position,” he said.

All very noble, but I guess only time will tell how the very tight circle of Irish property developers and banking institutions will find a way around this.

Or even how tightly the government will stick to their intentions if the same property developers that are in trouble today are the “only game in town” in years to come if they end up being the only people willing to buy the property at any price from NAMA.

For some excellent reading on the proposed NAMA legislation, check out the following websites:

Anyone have any other recommendations?

0

How NAMA is the perfect solutions for property developers to come up smelling of roses, again

I’ve been thinking about the possibilities that may arise with this new National Asset Management Agency. Given the lack of detail there is a possibility that the following scenario may arise. It is however impossible to totally rule it in or out given current details released. Please realise also that this is just my thinking at the moment – I’m not an expert on any of this.

You could surmise that this scenario would be political suicide for Fianna Fail if it did turn out to be true, and did actually happen, but given everything that’s happened in this country so far, it may not be beyond the realms of possibility.

This scenario became all the more “live” for me over the weekend when I saw in the Sunday Times that the person who actually came up with the National Asset Management Agency used to actually work for a property developer themselves – i.e. an insider in the whole Irish property game. (See here for the Sunday Times report on how Peter Bacon worked for Ballymore Properties).

Here’s my thinking on a how this who NAMA scheme might work:

A property developer sets up off the shelf company in 2006 to borrow €100m to buy a particular property.

This €100m borrowed from a bank, with the property itself as collateral, valued at €100m. No personal assurances are requested, because they were never given and there was always a bank down the road that would give the loan without it anyway.

Let’s assume that as of today then, there is €100m still outstanding – capital owed plus unpaid interest plus charges (therefore debt deemed toxic).

Now, the new National Asset Management Agency (NAMA) comes riding in on it’s white horse.

The property is deemed to be a distressed asset, with no interest being paid on the loan.

Magically, through whatever is the valuation formula that isn’t being revealed to us, the property is valued at €20m.

The net position now for the property developers company is that it’s still in the hole for €80m.

NAMA now assumes the responsibility of the debt from the Bank, and the property is handed over as well.

So, NAMA now owns property that was valued at €100m but is now worth €20m, and now has a creditor, the property developers company, who owes it €80m.

The property developers company is now supposed to make payments to the NAMA on a loan on property that it now doesn’t actually own.

As for the bank, it is now in the hole for the difference between the value of asset when it was passed to the Agency (€20m) and the amount of the loan (€100m). However the bank will most likely get a capital injection of €80m from the government where required to make this up – this is how people assume that the use and development of NAMA will lead to nationalisation of the main banks.

However most people don’t care about this and just say that the toxic assets are successfully removed from Banks balance sheet and they can get lending again. But watch below where they can start lending again.

The property developer will now look at the situation and see that they are running a company that is €80m in debt, but owns no assets. Obviously this isn’t worth continuing, so they wind up the company.

The NAMA now has a debt for net €80m which immediately becomes a bad debt, and property worth €20m.

As the property developer has wound up the company, there is no way for the €80m to be recouped since no personal assurances were likely to have been given to the Bank originally, and it was only the property itself that was used as collateral.

As of now, the original debt of €100m with the bank has now seen €80m handed over by the government to the Bank, and the NAMA sitting on a bad debt of €80m. If you remove the €20m value of the property, the original €100m debt at the bank has now turned into a €140m cost to the government via bank recapitalisation and the liabilities of its NAMA.

What happens next then? The NAMA is left sitting with huge debts, and an amount of property that it doesn’t have the mandate to develop or make money from – apart from maybe getting rental due.

How about if the original property developer sets up new company – or someone close to him does? This new company is set up to purchase and develop property.

The new company now identifies a distressed property, owned by NAMA, that it would like to get its hands on – mainly because of the fact that it used to own it previously.

The property developer company now gets loan for €40m from the same bank or another bank (that’s free and clear of bad debt and willing to lend thanks to NAMA and the government recapitalisation).

Property developer company goes to NAMA and offers €40m for the property that it has on its books, valued at €20m.

NAMA accepts the offer as it is making a book profit of 100% on the property – which it will crow to the rooftops showing us that the whole scheme is a fantastic success.

But, NAMA still has a remaining and now unrecoverable net debt of €60m. But this will be declared as “expected” by the government and will, they will tell us, be recovered by a “levy” on the banks to make up the difference.

Remember though, that even if this €60m was recovered from the banks, through the recapitalisation earlier in the process, the banks have already received €80m from the government, so the levy really is just the government getting their own money back.

And leaving the banks with a €20m profit on what was essentially a bad debt.

And in the meantime, our property developer friend gets his property back priced at a song compared to what he originally paid for it, and a repayable debt of only 40% of what he originally had.

As I say, I’m more into this for the conspiracy theory angle given that I’m not an expert on this whole thing, but I’ve run this scenario past a few people who know more than me about such things, and they haven’t dismissed it out of hand.

What do you reckon?

5

Powered by WordPress. Designed by WooThemes

hit counter