NAMA, Ireland's toxic loan agency, is to make a move that will change its role to be closer to lender in an attempt to bolster the residential and commercial property markets.
The agency is looking to provide debt funding for the commercial market, specifically staple financing to purchasers of "commercial property which is either under the control of NAMA debtors or of receivers engaged either directly or indirectly by the agency". NAMA said that the decision had been made as it saw "tentative evidence to suggest that we may be close to the bottom of the cycle in Ireland".
NAMA confirmed to Hotel Analyst that it would at look "any commercial proposals made to it with respect to all types of assets", focusing on commercial property with a rental flow, opening the way for hotel investors.
To date, NAMA has approved of the sale of an estimated Eu3.3bn in property assets held by debtors, with the majority of it in the UK. Some of the proceeds of these sales were used to pay down debts to participating institutions or to non-NAMA banks where they had co-lent on developments. The group is estimated to holds up to Eu20bn of commercial property loans relating to UK real estate.
In the hotel sector, the highest-profile holding for NAMA remains the loans to Irish property investors in the Maybourne Hotel Group, which is currently the subject of wrangling between, at the last count, the Barclay brothers and Malaysian and Chinese sovereign wealth funds.
With both the Queen and Barack Obama visiting Ireland in the past week, the country's profile has been high. However, the Irish property market remains of little interest to investors, as commercial property prices are reported to have dropped by 60% over the past three and a half years and fears continue that the fall will be ongoing. NAMA now thinks that the bottom may have been reached, with prices likely to see slight increases in both 2012 and 2013.
NAMA said that vendor/staple funding was widely used internationally and under their plans would require the purchaser to inject equity capital of 25% or 30% of the purchase price of the asset upfront while entering into a loan agreement with NAMA to repay the outstanding percentage of the purchase price over a five- or seven-year period.
The agency said that it expected that it would typically engage with sovereign wealth funds, pension funds, insurance companies and private equity firms. It added that advantages to the decision included the fact that the mechanism encouraged purchasers to buy in a distressed market, setting a floor for the market with both parties sharing the risk on the purchase over the lifetime of the loan.
In a speech to the Cork Chamber of Commerce, NAMA chairman Frank Daly said: "Taking account of the long-term relationship between commercial property prices and economic growth, we know that for much of the past decade, prices had accelerated well ahead of GDP growth and that they have now corrected to levels where we would have expended them to be had the price bubble not taken place. There are a number of other indicators which suggest a stabilisation of prices including the reversion of office and retail yields back to pre-bubble levels."
Daly said that the agency continued to see "a lot of interest from international professional investors who have a more long-term performance horizon in mind and who are interested in acquiring strong income-producing assets which will provide a steady return over time".
"We would not be lending money as such," he added, "In reality, it does not require any new money from NAMA; it is a recycling of existing debt but achieving a significant cash payment upfront". Daly said that foreign investors had "hardly featured" in the last decade in the Irish commercial property market and would not return without funding being made available on attractive terms, adding "the key constraint, as we see it, is neither supply nor demand but liquidity".
In addition to the sale of Eu3.3bn of assets, the agency has approved close to Eu800m in new money advances to enable projects which were described as being "commercially viable" to be completed or otherwise to protect and enhance its value. NAMA currently has Eu1.2bn in cash balances after redeeming of NAMA senior debt and repaying the minister for finance Eu299m of working capital provided in the middle of last year.
Daly said that the agency's remit was to recover for the taxpayer what it has paid for acquired assets plus any additional project funding, working capital and other costs. He said: "What NAMA is not is some form of national financial freezer into which troubled loans can be deposited in the hope of future cryogenic salvation. Nor is NAMA a resting home to enable debtors to take time out from the consequences of their borrowing."
HA Perspective: NAMA is likely to take advantage of the holdings it has acquired in the buoyant London market to bolster its coffers – indeed, some argue that NAMA will be the biggest vendor of property in the UK over the next couple of years. But its main issue is the depressed domestic market. The Irish government will look to it to help shore up the Irish property market and, by taking these measures, make the country an attractive investment prospect again.
Although Daly spoke out against developers who have "difficulty surrendering the grandiose lifestyles that they seem to regard as their continued entitlement" he warned against "demonising" developers and banks, commenting that they were a necessary part of the country's future development.
Given the massive oversupply of hotel stock in Ireland it is hard to see how useful the developers will be for the hotel sector in the near term.