Nama loaned developers €47m to finish projects

NATIONAL ASSET MANAGEMENT AGENCY REPORT:NAMA LOANED an extra €47 million to developers earlier this year, even though many were not repaying debts they already owed the asset management agency.

In the first six months of this year, Nama paid five Irish banks a total of €8.4 billion to acquire property loans with a nominal value of €16.4 billion.

Figures for the second quarter, released yesterday, show of the 1,190 debts it acquired, 887 were “non-performing”, meaning the developers who originally borrowed the money were not meeting interest or principal repayments. The agency’s quarterly report also shows that it loaned €46.6 million to some developers to allow them to complete projects or to provide their businesses with working capital.

Nama did not name the developers as it does not comment on individual cases. It is understood some of those to whom it loaned the €46.6 million were responsible for non-performing debts.

The agency said it would provide working capital and project finance to developers who owe it money in cases where it believes this to be in taxpayers’ best interests. It has a budget of up to €5 billion for this purpose. Nama paid €5 billion for the non-performing loans, which had an original nominal value of €11.7 billion.

In all, 71 per cent of the loans are non-performing. The agency originally expected that this figure would be 66 per cent, but revised that up to 75 per cent when it published its business plan in July.

Nama is a central part of the Government’s effort to recapitalise the banks and revive the Republic’s financial system.

It is buying €73 billion worth of property-related loans owed to five institutions, Anglo Irish Bank, Irish Nationwide, AIB, Bank of Ireland and EBS, at a discount that is likely to be around half the debts’ original value.

The agency is paying for the loans using bonds that the banks can exchange for cash with the European Central Bank. The scheme’s aim is to remove bad property debts from the banks’ balance sheets so they can raise fresh capital and begin lending. Nama has said its priority is to ensure that the developers involved repay the entire amounts that they owe.

The bulk of the agency’s work is done through National Asset Management Ltd, a special purpose vehicle in which Nama has a 49 per cent stake and is 51 per cent-owned by private sector investors.

Accounts released yesterday show Nama lost €1 million in the first six months of 2010. This was largely due to its €7 million set-up costs. The figures also show that in the second quarter, it made a €6 million profit. It generated €130 million net positive cashflow.

Its income included interest payment from loans it has taken over. It also forced borrowers to prioritise debt repayments by diverting rental income from their properties to the agency. Earlier this week, the High Court shot down a legal challenge by developer Paddy McKillen to prevent Nama taking over some of his loans. His liability to the agency comes to around €2.1 billion.

Nama’s quarterly report states that it hopes to make “significant progress” with its work next year.

Early next year, it should have finished reviewing the business plans submitted by the developers. It will also have assigned final values to the properties against which the loans it is taking over are secured. At that stage, it will begin taking enforcement proceedings against debtors it believes are not viable and will work out a strategy to manage those that are.

It is also likely to begin selling properties to recover the money. Nama’s board wants the agency to have recovered 25 per cent of the €73 billion total, about €18 billion, by the end of 2013.

Nama’s chief executive, Brendan McDonagh, said it has reviewed business plans submitted by developers and is setting out detailed objectives for its debtors.

“Based on our experiences of engagement with borrowers . . . we expect the majority of borrowers will see the benefit of co-operating fully with us to achieve the best commercial outcome,” he said.

COMMERCIAL RENTS: DUBLIN MARKET

THE DUBLIN office market is "less overbuilt" than is perceived and commercial rents will resume growth by mid-2014 or mid-2015, according to Dr John McCartney.

The a CSO economist and former head of research at Lisney bases his argument on a revaluation of the Natural Vacancy Rate (NVR), which contends that every property market has a level of vacant space.

His research argues that, while traditional assumptions estimate an NVR of 7 per cent for Dublin commercial property, the true figure is almost 15 per cent. Because the current actual vacancy rate is 23 per cent, the 15 per cent NVR means the market faces a shorter journey "back to equilibrium" and recovery should emerge sooner than expected.

The revaluation will have positive implications for Nama, he said. The research is predicated on the assumption that Dublin's total office stock will remain constant in the medium term. It also bases its analysis on rent for new lettings.

– Suzanne Lynch