Property
NAMA expects surplus of less than €500m - it's not a profit; 88.5% sales to US investors
By Michael Hennigan, Finfacts founder and editor
Oct 23, 2014 - 8:43 AM

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The National Asset Management Agency (NAMA), the Irish public toxic property loans agency, expects to have a surplus of less than €500m on the troubled loans it acquired from the country’s banks by the time it shuts shop in coming years but this surplus is far from a profit. Meanwhile 88.5% of assets that have been put on the market have been acquired by US investors.

Brendan McDonagh, chief executive of NAMA, told the Oireachtas Joint Committee on Finance, Public Expenditure and Reform on Wednesday about 100 of its 800 debtors have so far exited its system since the agency began its work, while the geographic breakdown of its asset sales in the past 18 months, show that 88.5% have been to US investors. Domestic buyers accounted for 6.9%, Germans were at 3.5% and UK investors at 1.2%.

“Yesterday our June 30 accounts were published and we did an assessment at that stage... we’ve always taken a prudent view of this; if the conditions maintained as they were then we would probably see a somewhat less than €500m surplus at this stage,” he said

By the end of 2011, a total of €74bn in loans had been transferred to NAMA by the five participating banks and building societies and €31.8bn was paid as consideration to the institutions - an overall discount of 57%.

The Irish State bailed-out Irish financial institutions at a cost of €64bn and the value of the NAMA surplus + funds raised from selling the public stakes will eventually indicate the extent of the losses.

McDonagh said the agency had redeemed €15.1bn in senior debt since its inception — 50% of the €30.2bn issued by NAMA to acquire loans from the financial firms.

He highlighted that "as part of its contribution to address emerging residential supply shortages in the Greater Dublin area, NAMA established a dedicated Residential Delivery team in April 2014. The team’s purpose is to co-ordinate and drive the delivery of NAMA’s commitment to facilitate the completion of 4,500 new residential units in the period to the end of 2016 and to assess the scope for delivery of additional units thereafter. Of the end-2016 target, it is envisaged that 1,000 units will be delivered in 2014, another 1,500 units in 2015 with the residual to be delivered in 2016."

The chief executive said that when preparing portfolios of assets for sale, "NAMA normally excludes from the sales process those sites which are likely to be suitable for residential development within a three-/four-year horizon (typically, sites in the Greater Dublin area). This is in line with the commitment we gave, as part of the Section 227 review, that we would protect our ability to exercise sufficient control to facilitate the delivery, over the medium term, of residential housing units in the areas of most need."

He added that NAMA is engaged in preparatory work on a group of sites in the Greater Dublin area which are currently in the planning process or where additional planning work is required. "If all of these sites were to be developed, it is estimated that they could deliver over 27,000 units in the years after 2016."

On asset sales, this week it was reported that a property sold by NAMA for €7.5m in 2013 was bought by a property firm for more than twice that price little more than a year later.

McDonagh said that it is necessary to take full advantage of current strong conditions in the Irish market to de-risk the remaining €17bn NAMA portfolio expeditiously. "Notwithstanding the very positive growth outlook for the Irish economy over the next two/three years, we are not sheltered from the impact of macroeconomic, financial, monetary or political developments in the US, Europe or elsewhere."

He also argued that there is an increased risk that investors will shift their attention elsewhere as the increased pace of deleveraging in other European markets creates more competition for investor funds. "Cushman and Wakefield, a property consultancy, estimates that €584bn of non-performing loans held by European institutions will have to be sold or worked out over the coming years, mainly due to the new single supervisory ECB mechanism which imposes tighter capital requirements on banks. From Ireland’s perspective, we are currently ahead of many of those competitor markets in terms of the progress we are making in deleveraging our risk and we should aim to retain that advantage for as long as possible."

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