Ireland's NAMA financing commercial property deals

DUBLIN Wed Oct 26, 2011 6:01pm BST

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DUBLIN (Reuters) - Ireland's state-run National Asset Management Agency (NAMA) is offering financing to help offload its commercial property portfolio, but said deleveraging by banks and a proposed law on leases was making life difficult.

NAMA, created to purge Irish banks of nearly 75 billion euros (65 billion pounds) of risky land and development loans, is one of the world's largest property groups and needs to revive Ireland's moribund commercial property sector to avoid further writedowns to its portfolio.

In a bid to kickstart the market, the agency is willing to provide up to 70 percent vendor debt finance if significant equity capital is provided up front, Chairman Brendan McDonagh told a parliamentary committee.

The product will target pension funds, insurance companies, private equity firms and sovereign wealth funds, he said.

McDonagh said NAMA had sold over 4.6 billion euros' worth of assets so far this year and had made a profit of between 12 and 15 percent on the 80 percent of that book sold overseas.

However, sales in Ireland were complicated by foreign banks deleveraging their Irish assets, he said.

"It's a very difficult market. Asset markets are declining rather than increasing. Asset values have to increase by 10 percent above 2009 before we see any profit," McDonagh said.

"From our experience, there is no pot of gold out there."

NAMA is under pressure to produce a profit at the end of its 10-year lifetime after its heavy discounting of the loans it acquired caused huge holes on the banks' balance sheets that the taxpayer was forced to plug.

The agency lost 1.18 billion euros last year on the back of a 1.5 billion euro impairment charge. The agency expects to post an operating profit before impairments of over 600 million euros in 2011.

McDonagh declined to comment when asked if the impairment could reach 1 billion euros.

As part of an EU-IMF bailout, NAMA is committed to selling 25 percent of its loan book by the end of 2013 to help it meet a target of repaying 7.5 billion euros' worth of debt by that date.

So far, NAMA has repaid 1.55 billion euros in debt, and McDonagh said the agency expected to make a substantial additional redemption of securities before the end of the year.

COSTLY RENT LAW

With a portfolio that ranges from London skyscrapers to farmland in the Irish midlands, NAMA has recently acquired an additional 2 billion euros' worth of loans, completing its purchase of badly impaired property loans and bringing the nominal value of its portfolio to 74.2 billion euros.

The price for the 2 billion euro transfer has yet to be finalised, but it is expected to be subject to an average discount of around 58 percent, McDonagh said, meaning that NAMA will have shelled out close to 33 billion euros for all loans.

The government's proposal to ban upward-only rent reviews by Irish commercial landlords, which have left retailers paying boom-time rents, could cut over 20 percent from values, costing NAMA "a couple of billion" euros, McDonagh said.

As a result, "we wouldn't be able to pay all of the NAMA debt," he said.

NAMA is considering offering incentives to some of its 850 debtors, including some of the country's most high-profile property developers, to encourage them to beat the financial targets set by NAMA. Around 200 developers are drawing down salary from NAMA, at an average of 70,000-100,000 euros, to manage their assets, with two on 200,000 euros per year.

But there is little prospect that the developers will turn a profit, NAMA Chairman Frank Daly told the committee.

"I don't really see any portfolio in NAMA that'd result in a big pay day for any developer in three, four, six years," Daly said.

(Writing by Carmel Crimmins; Editing by Will Waterman)

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