Real Estate & Planning
NAMA – An Irish Solution
to Property Debt?
Éamonn D’Arcy
08 April 2015
© Henley Business School 2008
www.henley.reading.ac.uk
Ireland – A Classic Real Estate Bubble
• Positive economic conditions promoted real estate
investment by firms and household
• Public policy measures also promoted real estate
investment by households
• Cyclical acceleration in price promotes speculation
and over-evaluation - volume of outstanding loans
increases and mortgage credit accelerates
• Lenders contribute to the bubble by supporting
demand through arranging finance for potential buyers
even for international purchases – Liquidity
• Most investors and developers had little supporting
corporate infrastructure or access to capital other than
through bank lending and majority had little or no
obvious professional capacity related to real estate
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Real Estate Bubbles are not new!
•
•
•
•
•
•
US 1920s – Residential
US 1980s – Office Markets
Japan 1985-91 – Commercial
France (Paris) 1989-92 – Commercial
UK late 1980s – Residential
Asian Financial Crisis 1997 – Real Estate Bubbles a key feature –
Thailand, Malaysia
• US 2000-2007 Residential
• Spain 1999-2007 Residential
• China 2003-2009 Residential
• Ireland – Residential and Commercial
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3
Bubble Impacts
–
–
–
–
–
Re-pricing falling capital values
Non-performing real estate loans
Distressed assets
Overbuilding – market consequences
But time-frame of impacts far from uniform
• Key influences on market recovery
– Growth Context
– Institutional Structure of Real Estate Markets
• Professional Capacity, Innovation, New Players
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The Irish Bubble
• Many similarities with the Japanese Bubble
– Bubble at the end of a prolonged period of growth
– A very speculative bubble
– Significant debt burden
– Wider problems of economic competitiveness
But Japanese Bubble more focused on Commercial Property
• In Japan post-bubble real estate problems lasted for over 15
years.
– Poor growth rate a key issue
• In Ireland exposure to property debt created the need for urgent
recapitalisation of the Irish Banking Sector
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The National Asset Management
Agency (NAMA)
• A key element of the Irish Government’s approach to
bank recapitalisation
• Remit acquisition of performing and non-performing
real estate related loans from participating financial
institutions
• Removes toxic real estate loans from balance sheets
• Institution receives a price based on NAMA’s
assessment of the assets potential ‘long-term
economic value’
• Funds received recapatalise the institution
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NAMA Business Model
1. Bank sells €100m loan to
NAMA
NAMA
Bank
2. NAMA gives Bank (say)
€60m Government bonds in
return
Borrower
NAMA Perspective
►NAMA
Bank Perspective
controls the relationship with the borrower and makes all decisions
►NAMA
receives income on the acquired loan portfolios (usually floating
extent that such is recoverable
►NAMA
3. Borrower continues to
owe €100m to NAMA,
despite NAMA only having
paid €60m to Bank for the
loan
pays an interest coupon on government bonds (floating interest
►Reduces
risk weighted assets (RWA) which have a
high weighting for capital ratio purposes (which
will somewhat mitigate the impact of any valuation
impairment upon transfer)
►Removes
the loans from the banks balance sheet that
generally cannot be used for collateral purposes to
access liquidity with Central Bank or other market
counterparties
►Receives
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government bonds which can be used as
collateral with Central Bank or other market
counterparties for liquidity (zero weighting RWA)
NAMA- An Outsourced Operating Model
NAMA
project
Tax:
PwC
NAMA
Property Valuation:
JLL
Loan Valuation:
HSBC
Master Servicer:
Capita
Legal:
Arthur Cox
Audit Coordinator (KPMG)
Loan valuation: Panel of firms
assigned to individual
institutions
Property valuation:
Panel selected
Legal DD:
Panel selected
Certification by CEO and CFO regarding material accuracy of submission
assurance process
External valuers
Bank
project
External solicitors
Data workstream
Valuation workstream
Legal workstream
Loan administration
Data flow to NAMA
Pre-loan transfer to NAMA
Post transfer
Asset Transfer
• Complex Process
– Assessments of asset quality central to the transfer process
because of the need to establish long-term economic values
– Essential to get this right for the long-run ability of NAMA to
achieve its goals
– Discounts higher than initially expected
• Estimated book value of loans transferred will be in the
region of €80 bn.
– Approximately two thirds of the assets are located in Ireland
with the rest overseas (mainly UK)
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Key Tranche 1 Data
Lending
Institution
AIB
BOI
EBS
INBS Angl
o
Total
Loan Balances
€ bn
3.29
1.93
0.14
0.67 9.25
15.28
CMV of Property 1.87
€ bn
1.26
0.10
0.36 3.86
7.45
LEV of Property 2.04
€ bn
1.41
0.10
0.41 4.31
8.27
LEV uplift as a 9.1%
% of CMV
11.9% 8.4%
11.8 11.7
%
%
11%
Total € bn
1.90
1.26
0.09
0.28 4.16
7.69
Source: NAMA
Discount
42%
35%
36%
58%
50%
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55%
NAMA – Going Forward
• Timing and Characteristics of Irish Economic
Recovery
– Essential for uplift in asset values given the dominance of
Irish assets in its portfolio
• Transparency
– Asset Characteristics – quality
• The need to interpret NAMA as a real estate entity and
to plot its future course from this perspective
– Learn from global best practice in particular with respect to
asset management and disposal strategies
– Use it to foster a REIT market?
– NAMA as an Opportunity (Vulture) Fund?
– Integration of NAMA as a player within the global real estate
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sector
Putting NAMA in a Property Context
• NAMA 80.0 (50.0) € Billion
• GE Capital Real Estate -84.0 US$ Billion
• Unibail-Rodamco 22.3 € Billion
• Westfield 28.0 US$ Billion
• GIC Real Estate 24.0 US$ Billion
• Blackstone Real Estate 23.7 US$ Billion
• Hines 22.9 US$ Billion
• Simon Property Group 20.57 US$ Billion
• Land Securities – 10.0 £ Billion
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