Kevin O'Higgins Solicitors

Nama’s change in outlook: from undertaker to investor

Friday, 18 July, 2014
The Irish Times
Tom Lyons, Senior Business Correspondent

Brendan McDonagh sat close to the front row on Wednesday in the press room of the Department of Finance. The chief executive of the National Asset Management Agency (Nama) listened as Minister for Finance Michael Noonan and Frank Daly, his chairman, outlined a bold new vision for the property agency. This will see it reinvent itself, moving from its role as manager of toxic debts into that of investor in housing and the backbone of the future regeneration of Dublin’s Docklands.

Daly said Nama was confident it could invest €3 billion in both projects while hitting its debt-repayment targets.

Noonan outlined a vision of the docks as having “the potential to be the Canary Wharf of Dublin”. “If you look at all the European cities and the great American cities, there is hardly any city left that has such an extensive piece of development land so near the centre of a city which also has a waterfront. It is unique.”

In total, he said, Nama had 22 hectares in the docks, enough space for 3.8 million sq ft of commercial office space, plus room for 2,600 apartments.

“Nama can fund up to half the amount of houses required in the greater Dublin area over the next five years and also significant housing in the southeast,” the minister continued.

#Nama, he said, could help build 22,000 new houses and apartments in Dublin.

It is also a large land-holder close to Dublin Airport, where assets could be redeveloped as either a new industrial or residential area. And it is working on plans to develop vacant sites in Cork, Limerick, Galway and Waterford.

It was all very positive stuff, against which even Nama’s critics would find it hard to argue.

Afterwards, McDonagh is in upbeat form. He recalls to The Irish Times being in that same meeting room in late 2009 when Nama was established by Noonan’s predecessor, Brian Lenihan. Back then things were very bleak. Nama’s task was to get €74 billion off the balance sheets of Ireland’s banks in the hope that this would stabilise them sufficiently to prevent one or all of them toppling over. Stress tests “The banks couldn’t live without that,” McDonagh says. “All the indications are that they have stabilised and they will get through the stress tests in October by the European Central Bank. I think without Nama that would probably have been very difficult for them.”

Setting up Nama, McDonagh frequently met Lenihan to discuss strategy. Would the late Fianna Fáil minister be happy with how things turned out?

“I think overall he would have the same view as the current minister,” he says.

“He [Lenihan] said to me at the very start of this thing ‘it had better not cost me any money’ and that has been our objective. We are very confident it won’t cost the State any money and potentially might have a surplus.

”But has Nama really fixed Ireland’s banks and got credit flowing again to Irish business as Lenihan promised?

“That was never Nama’s job,” McDonagh says. “People forget that back in 2008 and 2009 the ECB wasn’t very accommodative in terms of the collateral it would accept when the banks went to try and get cash.

”Nama, he said, gave Ireland’s banks €30 billion in funding, making them eligible for ECB support at a time when they had run out of options.

“Without that, the banks would have had a huge loss of liquidity. We were only part of the solution, we were never all of the solution,” he says.

Nama, McDonagh says, had helped the banks gradually reduce their reliance on the ECB and re-enter the normal funding markets. Now, it is ready for a new phase.

Nama said on Wednesday that it would repay at least 80 per cent of the €30.2 billion in senior debt it used in 2009 to acquire loans from Ireland’s banks by the end of 2016, two years ahead of schedule.

To achieve this has required an unprecedented sell-off.

About 75 per cent of what Nama has sold to date has been snapped up by fewer than 10 very large American investment funds.

Is McDonagh concerned that selling Ireland so rapidly to so few could lead to these funds becoming too powerful in the Irish economy? “That is not for me to say,” he says. “If you look at IBRC [the former Anglo Irish Bank] a few people bought a chunk of assets there. It is being dealt with.”

McDonagh says that there were few signs of these funds acting too aggressively.

“The wolf at the door hasn’t been seen yet. I think the reality is, as the economy recovers the ownership of the assets doesn’t matter.

“These people invest their clients’ money on the basis they will get a return. They are not charities. They get in, they buy, and then they sell on. That is the reality.

“Buyers are buyers – our job is to get the best price we can for it. If there are issues about control regulatory authorities can deal with that; it is not for Nama.”

Nama started life with 800 debtors or clients ranging from household names such as Sean Dunne and Bernard McNamara (both now bankrupt), to international developers such as Sean Mulryan, to much smaller players with a disparate array of investments.

McDonagh says Nama’s clients now number 700, of which 500 were relatively small with total combined borrowings of €2.5 billion.

He said Nama now plans to focus on finding solutions for these clients in the near term.

“We can do things by grouping some of these clients together. The sweet spot for buyers is probably the €100 million to €150 million ticket size; if you go up to the billion range you will only get a few bidders,” he says. Play the market “From our point of view we have to be sensible and play the market. For all of 2014 and into 2015 we know the assets we want to bring to market.”

There is much speculation about what Nama may do but McDonagh as a rule does not discuss individual situations.

One developer who will be closely watched is Joe O’Reilly, identified by a leading estate agent as one of Nama’s biggest debtors.

“In O’Reilly’s case his assets include the Dundrum shopping centre, a stake in the Pavilions Centre in Swords, the Ilac Centre and a large site on the site of O’Connell Street with historic links to the 1916 rising,” the estate agent says. “Will Nama bring this portfolio to market now? Or will it invest further in his businesses to add additional value before selling them on in a few years’ time?”

Nama has similar strategic decisions to make about other big borrowers.

McDonagh says Nama’s focus was on preparing good data rooms to give clarity for potential bidders about what they are buying.

“I met a very senior guy from one of the major funds of the world this morning,” McDonagh says.

“He said to me, ‘Brendan I will keep coming back to Ireland to buy because you have a good data room and a very stable legal system. That is what we like, and that is what I tell my investors’.” Property assets McDonagh says Nama is not overly concerned about competition from other European countries trying to sell off property assets at the same time as Ireland.

He said Spain was planning to sell regional assets, land and residential properties to overseas investors.

This was, McDonagh says, a different product to the bulk of Nama’s remaining portfolio. “We have the range of assets, hotels, office, land, retail that other people don’t have,” he adds.

He said Nama also had first-mover advantage in Europe.

“The others are two or three years behind. So listen, it is working well and hopefully it continues.”

At that he moved off with almost a spring in his step to join Daly and his Nama team as they prepared to leave the press conference.

The State’s toxic bank, once an undertaker of a reckless past, now hopes to breathe life into Ireland’s future.