Investigative journo needed for NAMA story!

mikep

Hi

Could any investigative type journo's PM me to get the heads up on a NAMA story.
heard something that should be investigated regarding a developer (allegedly) trying to clear a building of tenants so as to get it into the NAMA scheme. Don't ask me to name and shame here as I don't want to drag boards into legal hoo haa...

Mods: I wasn't sure how to approach this so apologies in advance if this doesn't obey the rules etc..if this is true it is mind blowing!

ifconfig

I am just trying to figure out what the alleged motives would be here.

Candidate loans for NAMA, we are told, are both performing and non performing loans. Performing loans might mean that there is at least some rental income on the properties/assets on which the loan is based.
I'm not clear on why a developer would make a property more "NAMAable"
to use the horrid verb I've heard used in the media by chucking out the residents. Perhaps if the occupancy is very low there is little rental income coming in. The other possibility is that the alleged developer would be trying to turn his slightly performing loan into a non performing one so as to increase it's chance of being eligible as a candidate loan transferred to NAMA.

Good luck though with getting it investigated.

mikep wrote: »

Hi

Could any investigative type journo's PM me to get the heads up on a NAMA story.
heard something that should be investigated regarding a developer (allegedly) trying to clear a building of tenants so as to get it into the NAMA scheme. Don't ask me to name and shame here as I don't want to drag boards into legal hoo haa...

Mods: I wasn't sure how to approach this so apologies in advance if this doesn't obey the rules etc..if this is true it is mind blowing!

Seth Brundle

www.phoenix-magazine.com

Dannyboy83

I heard recently that a massive development in Cork City was being emptied and tenants were being offered higher value houses in Blackrock and Rochestown.
Reason being the same as the OP has given.

I didn't believe it, so I asked for a brochure/price guide.
Never even got a reply.

I don't know what the truth is, but they certainly don't seem to be eager to sell the apartments.

ifconfig

There is at least one proposal which is the result of a government request for ideas rather than a lobbied proposal. AFAIK, within NAMA it is illegal to lobby (although the fine is something laughable like 1K Euro or 6mths in jail)

Anyway the proposal I am thinking of and its negative connotations for you & I, the taxpayer are laid bare here:

Were such an amendment allowing NAMA to purchase outright vacant appartments and appt blocks then I think I could see how developers would recognise a handy escape exit whereby they could get long term economic value (well inflated above mark-to-market values should their loan be called in by NAMA as-is). In fact wouldn't such a mechanism incentivise developers to clear out properties of tenants in order to qualify on paper as vacant properties, which the state would be willing to purchase.

I could be way off the mark on this but I am struggling to see how, in NAMA as currently conceived , making a property vacant would somehow increase the possiblity of the loan on the property being transferred to NAMA.

Dannyboy83

ifconfig wrote: »

I could be way off the mark on this but I am struggling to see how, in NAMA as currently conceived , making a property vacant would somehow increase the possiblity of the loan on the property being transferred to NAMA.

TBH I think its just simple maths.

They spent 120million.
A 2 bed apartment is 350k minimum and a parking space is 50k, and management fees for the year are upwards of 4k per year.
Literally a few minutes walk down the road are suburbs, you can buy a 3 bed house for 250k (which is still significantly overvalued and Cork is due at least a 15% reduction before Dec 2010 according to the majority).

They've only managed to sell a few apartments out of hundreds.
All of the commercial units are empty.
In order to sell the remaining apartments and commercial units, they have to sell at market prices..........i.e. that 2 bed apartment should be going for 200k maximum, and maintenance/management fees should be 1k, parking space should be coupled with the apartment upon purchase.

So, selling at market value, they stand to lose 150k just from the offset, then parking spaces etc.
At Nama value, they lose nothing.
They get pre-correction prices/Nama Prices.

(The part about moving tenants was supposed to have been that it would be cheaper to close the building and have no management fees etc. than to have just 2 tenants in the entire building)

Hootanany

kbannon wrote: »

www.phoenix-magazine.com

Why

ifconfig

I'm fine with the maths but the NAMA business plan is that NAMA acquires the loans and not the assets and hopes and prays that the developers make good on their loans by the time the next government is in situ, well after 2012.
Sure, under NAMA a future-economic value of the property will be computed in order to compute the price NAMA pays out in bonds to the loan issuing bank but the developer is still on the hook for the original amount borrowed (less the Loan-to-value equity... which most people expect is a lot smaller than the NAMA projections have estimated , ie. 23%)

Originally when NAMA was introduced it was assumed that NAMA would agressively chase the developers on their loans from the get-go. The draft business plan changes that assumption and it looks like the strategy is to expect very modest returns on the loans in the first couple of years of operation (coincidentally the max lifetime of the current Dail) and then all comes good magically when 80% of the developers covered in NAMA make good on their loans. This would look like a interest holiday for developers given that the banks have already been rolling up interest like goodo.

If NAMA morphed along the lines whereby some vested interests got their way and got a mechanism in place whereby NAMA could cherrypick the acquisition of vacant residential property and actually pay for the asset (i.e NAMA pays developer rather than NAMA pays bank and keeps the loan alive) then that would be a window of opportunity for developers to write off their loans at a significantly better deal than would be the case if their loans were transferred under the normally assumed NAMA loan transfer mechanism.

Dannyboy83 wrote: »

TBH I think its just simple maths.


So, selling at market value, they stand to lose 150k just from the offset, then parking spaces etc.
At Nama value, they lose nothing.
They get pre-correction prices/Nama Prices.

population

ifconfig wrote: »

Originally when NAMA was introduced it was assumed that NAMA would agressively chase the developers on their loans from the get-go.

No it wasn't

ifconfig

Point taken - but by assumed I meant how it was being presented by Lenihan and co. I agree entirely that the general public and justifiably sceptical economists and commentators were not taken in by this assumption and they have been proven correct.

population wrote: »

No it wasn't

LostinBlanch

Look, anyone that thinks that NAMA is anything but a means of screwing the ordinary citizens of this country in order to featherbed FF's banker and developer buddies at our expense is deluded . . . . . . or a shill.

For more of the latest shenanigans take a look at yesterdays goings on. Oh look more profits for investors and bondholders while the losses are left with us.

INVESTORS in a new firm created to run NAMA will take a big slice of any profits it makes — despite the state still having responsibility for the €54 billion of toxic land debts it soaks up.

Bondholders will be given control of NAMA under the "shadowy" new set up, opposition parties warned as the move sparked fierce clashes in the Dáil.

Finance Minister Brian Lenihan insisted he was setting up the new firm — known as a Special Purpose Vehicle (SPV) — to run NAMA in order to get around EU rules and avoid the €54bn used to buy bad property deals from being included in the national debt.

Labour’s Finance spokeswoman Joan Burton expressed outrage at private investors whom she referred to as "spivs" being allowed to buy 51% of the SPV.

Ms Burton also questioned its legality and whether investors would use their power to halt NAMA bringing bankruptcy proceedings against "their developer friends".

"This is extraordinary. Control will be given to a shadowy new company run by investors. This makes it clear that NAMA really is a bailout for developers and bankers and this move will mean we will never really know what is going on in NAMA," she said.

Ms Burton added that the move meant the responsibility and liability for the €54bn debts would still sit with the state, but would be managed by private interests — a situation she compared to the shaky structure of US energy giant Enron before it collapsed.

Ms Burton also attacked the way the minister had revealed the SPV element so late and could still only give "sketchy" details about it.

The Labour spokeswoman warned the minister would have no power to claw back profits made by investors in the early years if the project went bust later on.

Fine Gael economics spokesman Kieran O’Donnell accused the minister of being deliberately "vague and illusive", saying the minister could not explain what €51 million from private investors would be specifically used for and who they would be.

During heated Dáil exchanges on the issue, Mr Lenihan said he was working in the country’s best interest to ensure the national debt was not inflated, and he insisted the board of NAMA will hold a veto on the operations of the SPV through the "share-holding agreement".

Labour also claimed that rejection of their amendments to the NAMA legislation, which would have given it a "social responsibility" aspect, made a mockery of Green Party claims they would bring such an element to the agency.

Under the scheme approved by the EU’s economic statistics agency Eurostat, NAMA will set up a "master SPV", which will be 51% owned by private investors and 49% by NAMA.

It will have subscribed capital of €100m and private investors will be represented on its board.

Captain Furball

Dannyboy83 wrote: »

I heard recently that a massive development in Cork City was being emptied and tenants were being offered higher value houses in Blackrock and Rochestown.
Reason being the same as the OP has given.

I didn't believe it, so I asked for a brochure/price guide.
Never even got a reply.

I don't know what the truth is, but they certainly don't seem to be eager to sell the apartments.

Have you tried to contact anyone and tell them?Ie 96fm?

Dannyboy83

ifconfig wrote: »

I'm fine with the maths but the NAMA business plan is that NAMA acquires the loans and not the assets and hopes and prays that the developers make good on their loans by the time the next government is in situ, well after 2012.

I agree with what you wrote, it makes sense.
I suppose, rather than take huge initial losses, they are at least deferring losses to some date in the future. It gives them a stepping stone to somehow miraculously recover profitability, assuming they even have any capital left to do so.
This is the only reason which makes sense to me.

I mean, at market prices, the apartments can be sold, no question.
Just not at NAMA prices.

If they do have capital left, they know the bubble cannot be re-inflated in Ireland or the UK. Perhaps they'll try in one of the BRIC countries or something? The output required to generate the necessary profit in those countries however, would seem to suggest its impossible, even over the next decade.

One question:
If they default against the bank, they lose everything.
What happens if they default against NAMA?

P. Breathnach

Dannyboy83 wrote: »

... I mean, at market prices, the apartments can be sold, no question.
Just not at NAMA prices.

What are NAMA prices? NAMA valuations are on loan packages, which constitute part (a very large part, admittedly) of the cost of a development. And NAMA is built on an (admittedly optimistic) estimate of future property values.

... One question:
If they default against the bank, they lose everything.
What happens if they default against NAMA?

No change: they lose everything.

Dannyboy83

P. Breathnach wrote: »

What are NAMA prices? NAMA valuations are on loan packages, which constitute part (a very large part, admittedly) of the cost of a development. And NAMA is built on an (admittedly optimistic) estimate of future property values.

NAMA Prices = Pre-depression/boom prices based on optimistic estimates of future property values (i.e. significantly overvalued)

http://www.irishtimes.com/newspaper/finance/2009/1020/1224257057380.html

anonymous_joe

Hootanany wrote: »

Why

Because they'd be the kind of people to follow up something like this?

Nate--IRL--

P. Breathnach wrote: »

No change: they lose everything.

No, we lose everything. In a lot of cases the "personal guarantees" back multiple loans.

Nate

P. Breathnach

Dannyboy83 wrote: »

NAMA Prices = Pre-depression/boom prices based on optimistic estimates of future property values (i.e. significantly overvalued)

http://www.irishtimes.com/newspaper/finance/2009/1020/1224257057380.html

I don't disagree too strongly with your definition, although I suspect that Judge Kelly's assessment is a bit extreme. The cases that make it to his court are probably not fully representative of the market: I suspect they are the worst ones.

Imagine a scenario:
- a developer during the height of the boom puts together a package costing €100m.
- He borrows €85m, and funds the rest himself.
- The expected sale value of the development is €110m.
- NAMA buys the bank loan for €70m.
- The developer's business collapses, and NAMA becomes the owner of the development.

To cover itself, NAMA would need to sell the development for €70m, which is about 65% of the original expected price. The expected profit is gone; the developer has lost €15m, and the bank has lost €15m.

Okay, you can complicate the scenario (making it a bit worse for NAMA) by bringing in the questions of time, expenses, and interest, and against that you can set the hope that things get a bit better for NAMA through some increase in property values.

jimmmy

P. Breathnach, I agree with your point and scenario. People think Namo is bailing out the developer, but no, as can be seen in the scenario, "the developer has lost €15m" ( this has typically been profit / money he / she made from previous projects ). Well put, and the same point I have made before in another thread re Namo / developers.

anonymous_joe

jimmmy wrote: »

P. Breathnach, I agree with your point and scenario. People think Namo is bailing out the developer, but no, as can be seen in the scenario, "the developer has lost €15m" ( this has typically been profit / money he / she made from previous projects ). Well put, and the same point I have made before in another thread re Namo / developers.

People are often too clouded by bitterness and anger (not necessarily unwarranted) to actually know the real effects of this.

No-one really 'wins' from NAMA, it's purpose is to stop things from getting any worse and not to make them better. Unfortunately, that's always harder to sell. Also, public opinion would lean towards letting developers and bankers go bankrupt, whereas that could have catastrophic effects most people wouldn't realise.

Nate--IRL--

anonymous_joe wrote: »

People are often too clouded by bitterness and anger (not necessarily unwarranted) to actually know the real effects of this.

No-one really 'wins' from NAMA, it's purpose is to stop things from getting any worse and not to make them better. Unfortunately, that's always harder to sell. Also, public opinion would lean towards letting developers and bankers go bankrupt, whereas that could have catastrophic effects most people wouldn't realise.

Uh the banks and their investors win, in that they don't have to suffer the full downside of the risks they took. The Taxpayer will do that for them. They get out of jail with a small haircut (LTEV) to their toxic loans.

Nate

SkepticOne

Dannyboy83 wrote: »

One question:
If they default against the bank, they lose everything.
What happens if they default against NAMA?

Nama is likely to be operated in such a way that they don't default, with the rationale (mistaken imo) being that they don't want properties to flood the market. in this way it will prove to be an unofficial bailout of developers even though Lenehan and the likes will deny this.

jimmmy

anonymous_joe wrote: »

Also, public opinion would lean towards letting developers and bankers go bankrupt, whereas that could have catastrophic effects most people wouldn't realise.

If Namo takes over the property, as in the scenario above, the developer will almost certainly go bankrupt ( he invested 15 million, invested time and energy, and is left with no property or proceeds from the propert : he has lost 15 million ). If Namo did not take over the property, he still loses the 15 million in todays economic climate. Namo is of no benefit to the developer. It is for the banks + societies benefit .

P. Breathnach

Nate--IRL-- wrote: »

Uh the banks and their investors win, in that they don't have to suffer the full downside of the risks they took. The Taxpayer will do that for them. They get out of jail with a small haircut (LTEV) to their toxic loans.

Agreed.

If the haircut was set too large, the banks would have collapsed, and the consequences might have been horrendous. If it was set too small, then bank shares which were worthless would become valuable again -- effectively the exchequer enriching investors.

My inexpert read is that the haircut was just a tad too small.

MrMicra

anonymous_joe wrote: »

People are often too clouded by bitterness and anger (not necessarily unwarranted) to actually know the real effects of this.

No-one really 'wins' from NAMA, it's purpose is to stop things from getting any worse and not to make them better. Unfortunately, that's always harder to sell. Also, public opinion would lean towards letting developers and bankers go bankrupt, whereas that could have catastrophic effects most people wouldn't realise.

Bank Shareholders win because the assets that they hold retain some value rather than becoming literally worthless.

Bank Management win because they would not be hired by entities setting up new banks in Ireland.

Fianna Fail wins because the AIB and Anglo Irish Bank books are not subjected to due dilligence in the way that they would be if the shells of those banks were being sold to foreign investors.

Property Owners win because NAMA is predicated on a return to high prices for land (actually the last group won't win because the government cannot reflate land prices).

It isn't clear to me how keeping a zombie banking infrastructure alive at the taxpayer's expense is 'stopping things getting any worse'.


It is possible that the intention behind NAMA is good. That doesn't mean that the plan itself is a good idea.

Nor is it reasonable to assume that the intentions behind NAMA are good in the sense that most people would understand the word. After all it is essentially a plan drafted by the banks themselves and accepted and implemented by a finance minister who is so lacking in a sense of moral indignation that it cannot be assumed that he possesses any notion of moral hazard.

Nate--IRL--

P. Breathnach wrote: »

Agreed.

If the haircut was set too large, the banks would have collapsed, and the consequences might have been horrendous. If it was set too small, then bank shares which were worthless would become valuable again -- effectively the exchequer enriching investors.

My inexpert read is that the haircut was just a tad too small.

The banks are insolvent, without NAMA they are dead. I think everybody is agreed on this. I have no problem preventing the banks from collapsing, it is very much the lesser of two evils. However....

Why are the investors (shareholders and bondholders) being bailed out too? The organisations they invested in are dead but for State aid. They should not be compensated, by the taxpayer, for their unwise investment decisions. A Debt to equity swap is the very least the taxpayer should expect.

Nate

P. Breathnach

MrMicra wrote: »

... After all it is essentially a plan drafted by the banks themselves and accepted and implemented by a finance minister who is so lacking in a sense of moral indignation that it cannot be assumed that he possesses any notion of moral hazard.

There is a difference between moral indignation and blind anger. Many of those who are opposed to NAMA are driven by blind anger (I'm not accusing MrMicra of this).

NAMA is intended to rescue the banks. Those who characterise it as a developer bailout are missing the point -- possibly due to blind anger.

P. Breathnach

Nate--IRL-- wrote: »

... Why are the investors (shareholders and bondholders) being bailed out too? The organisations they invested in are dead but for State aid. They should not be compensated, by the taxpayer, for their unwise investment decisions. A Debt to equity swap is the very least the taxpayer should expect.

Yup. I would have favoured NAMA + nationalisation.

jimmmy

The developer is still the loser, contrary to many peoples perception about Namo : in the scenario above, as said before, the developer will almost certainly go bankrupt ( he invested 15 million, invested time and energy, and is left with no property or proceeds from the propert : he has lost 15 million ). If Namo did not take over the property, he still loses the 15 million in todays economic climate. Namo is of no benefit to the developer. It is for the banks + societies benefit . If the 15 million was the profit / money he / she accumulated ( after paying tax ) from previous projects then he / she is left with nothing after all the celtic tiger years. This has happened to many smaller developers, not really sure about the ones in the really big bucks.

SkepticOne

jimmmy wrote: »

The developer is still the loser, contrary to many peoples perception about Namo : in the scenario above, as said before, the developer will almost certainly go bankrupt ( he invested 15 million, invested time and energy, and is left with no property or proceeds from the propert : he has lost 15 million ). If Namo did not take over the property, he still loses the 15 million in todays economic climate. Namo is of no benefit to the developer. It is for the banks + societies benefit . If the 15 million was the profit / money he / she accumulated ( after paying tax ) from previous projects then he / she is left with nothing after all the celtic tiger years. This has happened to many smaller developers, not really sure about the ones in the really big bucks.

It is worth remembering that at at this stage it is still a hypothetical developer we are talking about. We don't yet know how aggressively NAMA will go after developers once the loans are on its books. The indications are that it is unlikely to do so with the same vigour as properly run banks would and in this way NAMA will act as a developer bailout in addition to a bank shareholder and bondholder bailout.

Dannyboy83

P. Breathnach wrote: »

I don't disagree too strongly with your definition, although I suspect that Judge Kelly's assessment is a bit extreme. The cases that make it to his court are probably not fully representative of the market: I suspect they are the worst ones.

Imagine a scenario:
- a developer during the height of the boom puts together a package costing €100m.
- He borrows €85m, and funds the rest himself.
- The expected sale value of the development is €110m.
- NAMA buys the bank loan for €70m.
- The developer's business collapses, and NAMA becomes the owner of the development.

To cover itself, NAMA would need to sell the development for €70m, which is about 65% of the original expected price. The expected profit is gone; the developer has lost €15m, and the bank has lost €15m.

Okay, you can complicate the scenario (making it a bit worse for NAMA) by bringing in the questions of time, expenses, and interest, and against that you can set the hope that things get a bit better for NAMA through some increase in property values.

Ah yes, I see your point now, Thank you for explaining that.
I was being a bit too generous with the figures, not taking the discount into account.