NAMA - future potential

Niall Keane

NAMA and the possibility of MAKING money in 15+ years.
This seems to be the jest of the pro NAMA lobby. Below I have listed reasons why each part of the NAMA property portfolio won’t give a return; please can someone please explain why they think this won’t be the case?

1. Landbanks: I won’t dwell on this as everyone seems to understand and accept this risk. Basically sites earmarked for development outside the likes of Longford will never be sustainable, and on those grounds when they attempt to extend planning permission in the next year or two they will be refused, (planning permission generally lasts 5 years, and most of NAMA land got its permission during the tiger years so 2007 at the latest, time runs out 2012).
This land will never recover, and will need to be rezoned as agricultural (cost involved) before NAMA can sell it for 10% of what it cost. So NAMA buys for 70% loan value, it sells it for 10% = loss of 85%.

2. Residential: we should note that Le Corbusier perhaps the 20th century’s greatest architect called a house “a machine for living in”. The Celtic Tiger never built machines for living in, but the smallest box possible to generate a profit.
Take the nature of Tiger speculation. Paddy the developer wanted to build 100 units but to do this his bank wanted 15% of them sold off the plans to counter some of the risk. Paddy decided to “share” with his employees and friends a profit making venture and “allowed” them to purchase some units for €200k, the employees jumped at the change, knowing that before they needed to draw down the cash, they would sell them for €300k, a cool €100k in two weeks. Paddy “had” to do this to secure his 100% loan on his share. Now in 2004 Mr. And Mrs Bogelton notice how Paddy and everyone who works for him has the latest urban jeep, and “get in” on the property game, and after purchasing a unit for €300k, find that they sell it for €375k 2 years later. Not quite the €100k in two weeks but a respectable profit none the less, especially when done in multiples?
2007 and the DOE have finally noticed that families do not wish to live in 70sqm storageless boxes with tacked on balcony spaces no good for the proverbial cat to swing in. Given that all of the speculative development is designed for profit and not to be actually lived in, someone at the DOE must have thought: “are we building future slums?” and introduced new spatial standards. Still even after 2007 the 3 bed in Dublin had to be 100sqm, and only 15% of a scheme, while such family (not luxury) units in the USA and Germany (places where families generally live in such units) range from about 150-200 square meters.
Someone with an interest in future development probably spots an opportunity here, build family units, there’s no competition!!!!
Not only does size matter, which won’t help NAMA land, but one of the basic provisions of buildings, is shelter. The Green’s have in fairness pushed along the sustainability agenda, and now homes must be airtight, and very well insulated to meet current Building Regulations, in fact cavity wall construction needs 180mm of high density insulation, not the 60mm in NAMA land, and even then it is doubtful if such a technology will work, external insulation being the future. So all these NAMA homes are significantly under dressed compared with the homes built from now on. Also the regulations have changed several times this decade alone, each time to a higher standard. With a carbon tax on the horizon how much will a NAMA home cost to maintain?
It’s kind of like you take a 1989 Eastern European post USSR car, it has no air bags, no power steering, and can only run on leaded petrol. It takes ½ an hour to start up on the morning, after you pour boiling water on the engine to “heat her up”. Now should the automobile industry likewise pick up again in a few years, what do you think the chances are of selling a few thousand Ladas? Not unless we have a Mad Max Thunderdome world, I should think?

3. Commercial: Again similar green policies have an impact here. Now such developments need to meet higher regulations and be capable of natural ventilation, employ passive environmental controls such as twin skin facades, have energy recovery systems and in some cases capable of energy generation. So it will be for the future. Here again NAMA’s portfolio looks a bit like that old Lada.
But also one should realise that shop and office sizes have changed through the years. There are optimum sizes based on cost of rent to foot fall ratios. In offices technology changes, wires and cables require space and fire spread considerations, if we go wireless, why pay for fossils? Let’s not even speak of the new accessibility regulations, and equality laws!

I have just skimmed the surface above, I’m an architect, and although I may find technical details, regulations and building procurement fascinating, I can imagine that most people will have no interest or understanding of issues outside of their own field. Hopefully I have not bored you but made you aware of exactly how the wool is being kept over your eyes.
When I hear anti-NAMA economists argue that the failure of NAMA is that it requires a resurgence of the property market, I am filled with despair, they are still thinking in 2006, that the public will want to buy any dog kennel.
This will not occur, developers will exist where the market requires buildings, with a general economic recovery say in 15-20 years, there will be new developers ready to supply the market with buildings designed to future standards suitable for their needs. This need won’t be to sell on a shoe box for an outrageous profit; no one will fall for that again. So the NAMA portfolio will be seeking to punch way above its weight, competing against technologies and spatial requirements not yet dreamt about.
NAMA land will rot! Think the Ballymun Towers, in their day the future, within a decade leaking and costly. The real return on investment for NAMA will be whatever the diminishing rental yield amounts to, I believe it just covers the interest? We’ll never recover the capital!

LostinBlanch

Good post Niall, another reason why NAMA won't make a profit despite whateve it's apologists want us to believe.

Amhran Nua

LostinBlanch wrote: »

Good post Niall, another reason why NAMA won't make a profit despite whateve it's apologists want us to believe.

That doesn't bother the TDs though, they don't care if it makes a profit or not. Their idea is just to pump the banks up with taxpayer funds so it can be loaned out as mortgages and restart the bubble. I'm not sure why they even bothered with the whole "buying loans from the banks" bit.

So thats your money and mine being loaned out to get the bubble reinflated.

Clare_Guy

Amhran Nua wrote: »

That doesn't bother the TDs though, they don't care if it makes a profit or not. Their idea is just to pump the banks up with taxpayer funds so it can be loaned out as mortgages and restart the bubble. I'm not sure why they even bothered with the whole "buying loans from the banks" bit.

So thats your money and mine being loaned out to get the bubble reinflated.

Do you really think that the banks are going to lend money back into this risky economy? I don't, I think they'll just lend this cheap money back out onto the relatively risk-free bond markets...

graduate

This type of discussion is difficult without knowing what is in the NAMA portfolio. Yes the land outside Longford is worth little, but other land may be better located. People have said things like Carroll's land at Sandyford is worthless but property 5 mins from the LUAS and 5 mins drive from the M50 does have some chance of selling in any sort of upturn. It is location, location, location as usual with property. I live in a 1970s poorly insulated house, about as airtight as anti-Lisbon arguments, but it is by no means worthless, although it will decline by 50%-60% from peak.

Niall Keane

just watching Prime Time, and still the retort is all we have to do is gain 10% increase in value to break even. My original point has never dawned on people, even the high profile opponents of the scheme. If we are talking about selling buildings, why hasn't any opposition taken the advice of a building specialist, rather than economists who see only trends and not detial?

who what when

What a load of rot, Frank Lloyd Wright was the greatest architect of the 20th century

AlekSmart

One of the better RTE calls in the immediate aftermath of the Dáil NAMA "debate" was seeking the views of Mick Wallace.

The first interview I heard was on the Radio 1 Drivetime programme about 5.30 pm.

I must say Mr Wallace came across as down to earth and not afraid to hold his hands up.

He readily admitted to being in hock to 4 banks,only one of which was Irish (AIB) and his declared indebtedness is in the tune of €47 Million.

He spoke plainly of the realization that his entire operation is in the hands of these Banks.
They have the full power over whether he survives in the business or ends up with nothing.

it was also interesting to hear his opinion that the figures,then fresh from Leinster House,were somewhat on the "optimistic side"
and that he could not see how the Taxpayer can escape a big bill.

The interview,for me,rang very true and I would certainly have a great deal more regard for Mick Wallaces opinions as spoken by Mick Wallace,than for example Liam Carroll`s opinions delivered through a succession of bewigged ventrilloquists dummies !!

chris85

Clare_Guy wrote: »

Do you really think that the banks are going to lend money back into this risky economy? I don't, I think they'll just lend this cheap money back out onto the relatively risk-free bond markets...

My worry is that they will just pay their loans that are a high interest rate with the ECB... they need something in place to ensure the banks must lend a percentage of the billions they are getting...

I Believe in NAMA and it will work but at the end of the day its all based on property market recovering and this will not be done if the banks dont lend the money back out

chris85

chris85 wrote: »

My worry is that they will just pay their loans that are a high interest rate with the ECB... they need something in place to ensure the banks must lend a percentage of the billions they are getting...

I Believe in NAMA and it will work but at the end of the day its all based on property market recovering and this will not be done if the banks dont lend the money back out

Can you not see the paradox there though? It was the inflated property prices that got us into this mess.

Is that really the best outcome we can hope for? A return to the 35 year mortgages for overpriced shoe box houses/apartments?

Amhran Nua

Clare_Guy wrote: »

Do you really think that the banks are going to lend money back into this risky economy? I don't, I think they'll just lend this cheap money back out onto the relatively risk-free bond markets...

Exactly, why would they need to lend out retail mortgages for the next five years with the windfall they are being given, money for old rope.

Even with that, we don't really want them to lend out retail mortgages, since the boom was ruinous for every other sector except property, we want them to lend to domestic export based industries, which they have even less chance of doing.

Niall Keane

Chris 85:

I Believe in NAMA and it will work but at the end of the day its all based on property market recovering and this will not be done if the banks dont lend the money back out

If the property market recovers, as I stated in my original post, new developers will then build suitable and vastly superior buildings for the purposes that there are needed, NAMA land will not sell, just like you can't sell a low-end 1989 car today!

Perhaps we can sell the new developers apartment blocks in good areas etc. as sites, less the cost of demolishing the rubbish block that's on it? sites are 50% value of final sale usually, but less if demolition is required!

Niall Keane

graduate:

People have said things like Carroll's land at Sandyford is worthless but property 5 mins from the LUAS and 5 mins drive from the M50 does have some chance of selling in any sort of upturn.

The reason it is worthless, and the reason all the later highrise developments proposed for Sandyford have been refused is that the drainage services, i.e. the sewers are at their maximum capacity. At the end of the boom developers with 1/2 finished schemes were trying to sell on their allotted drainage capacity granted through prior planning permissions to each other. Basically, they would approach the planning authority together and seek to agree to not finish development A so Tower B could be built. Not sure this was sucessful. At the time there was talk of suing the athority re. their pre-planning advice and their Sandyford document and re-zoning as an area suitable for highrise. Guess it wasn't?
I'm sure all of this will out at some tribunal sometime.
To fix this problem, we'll have to replace or double the entire system from Sandyford to Dun Laoghaire, that's some project!
Again the devil is in the detail.