Nama From Heaven?
10 April 2011In a bailout of biblical proportions, the Irish financial Institutions have been spared by NAMA, cleansed and reinvigorated for the challenges ahead. This is the theory at least, but what about the reality to date?
So far, NAMA has acquired in excess of €70 billion in loans from the five participating institutions and has paid a consideration of c. €30 billion representing a discount of close to 60% (NAMA Third Quarter Report & Accounts Published 2 March 2011). The key objective in doing so is to generate from this base a commercial return for the Irish taxpayer over the stipulated timeline of 7 – 10 years. So how does this happen?
The answer is in theory at least relatively simple: debtors are required to produce a business plan outlining a realistic debt reduction strategy to include repayment/refinancing timelines and asset disposal. Typically, compliant debtors engaged in the business plan process have agreed to strategies ultimately resulting in a 25% reduction in debt by 2013 primarily through asset sales.
In a local context, there remains a very limited underlying understanding of NAMA and its role. Ask most market personalities and you will hear at best the terms 'bad or toxic bank', and at worst, some other vernacular version unsuitable for print in this publication! In truth, having almost completed the transfer of eligible loans, a sustained period of focused asset management is required. Within this remit, difficult decisions are inevitable, and given our own experience to date, non-compliant debtors will be given short shrift with assets quickly finding their way into the hands of the Administrator/Receiver. NAMA have made 41 such appointments to date according to their Q3 report.
Having liaised directly over the past few months with NAMA's Asset Managers, the advice is simple; be open, accountable and flexible and the approach will be reciprocated. Experience would appear to suggest the beginning of an understanding whereby all parties involved in the equation realise the commercial reality of the situation. There has been a rather steep learning curve for all involved, NAMA included, and the enormity of the task requires common sense if objectives are to be met over the 7 – 10 year horizon.
Locally, there remains a well-founded fear that enforcement action will exacerbate the current over-supply of product in the Northern Irish market and particularly that of development land. Unfortunately, the 'in joke' of agents advertising 'Prime Development Land with Excellent Agricultural Potential' is increasingly becoming the reality. Our recent market experience clearly demonstrates that there is already a chronic over-supply of development land with very limited interest and offers in all but the most established of locations reflecting agricultural value. This has seen land values plummet by upwards of 90% in many rural locations irrespective of whether the opportunity benefits from a valid planning consent.
It would only be fair to conclude that whatever the perception, NAMA is having a massive influence on our market and is here to stay for at least the next 10 years (probably longer). Setting aside the complexities created, its influence provides undoubted scope for the cash-rich investor/developer as opportunities will become more prevalent. In truth, the opportunities already exist - it is just a question of confidence!