EUROPE NEWS: Ireland's slow grind

The first transfers of troubled property loans into Ireland’s bad bank, the National Asset Management Agency (NAMA), at the end of March had been so eagerly anticipated that they could have been an anticlimax.

Yet the outpouring of public discussion as NAMA set about buying a portfolio of up to €80 billion from three Irish banks and two building societies has been intense.

Trying to score political points, Kieran O’Donnell, the deputy finance spokesman of Ireland’s self-proclaimed fastest growing political party, Fine Gael, said the “tide of public opinion” had turned against NAMA, as evidenced in a number of protests held at the bank’s Dublin headquarters. O’Donnell drew attention to recent remarks made by the Irish boss of US investment bank State Street, Willie Slattery, who described the organisation on a radio show as being “crazy”, too secretive and on track to “waste €10 billion to €15 billion” of taxpayers’ money. Slattery reportedly said developers’ toxic loans should be left to the banks to manage.

In forcing banks to sell busted loans at steep discounts (around 50 percent), the Irish government and NAMA have detractors and supporters. But what matters to private equity real estate firms is whether there will be deals.

Private equity firms have known since NAMA was established a year ago that it will not be a forced seller. It is going to take its time in disposing of its new portfolio of development sites in Ireland, together with another €16 billion of UK assets and projects.

Given it has a 10-year business plan, it is better to think of NAMA as a behemoth work-out shop.
One New York-based firm with operations in Europe said “things will be slow to emerge from NAMA as it will take some time for them to get their arms around the portfolio and they have time to work out their positions”.

In fact, the firm said, it was more likely that “action” would be seen from the nationalised UK banks first, even though there is no sign of major investtment there so far either.

Instead of waiting for NAMA, though, private equity real estate firms have been holding discussions with the leading Irish borrowers. The aim is to solve the bank’s capital issues – and buy their troubled property deals – before they are even transferred to NAMA.

Indeed, New York-based private equity real estate firm Westbrook Partners last month unveiled a £50 million (€56 million; $77 million) joint venture to develop a student accommodation block in Wembley, West London, by Victoria House – a subsidiary of the O’Flynn Group, founded by Cork’s Michael O’Flynn. The Irish Times earlier reported that O’Flynn was one of 10 developers whose property loans were expected to go into NAMA.

In the public property sector, deals are also taking place. British Land has bought back a London property it sold to Irish firm McAleer & Rushe, whose loan, provided by Bank of Ireland, is also reportedly due to go to NAMA.

Skeptics, however, question what type of discounts they will offer to private investors owing to the haircuts being demanded by NAMA when it takes over the mortgage. One firm said there could be “odds and ends” of deals but added: “On the other hand, these banks are controlled by the Irish government or falling under their control and it is a fine line to tread in allowing deals with private equity shops on loans that otherwise will go to NAMA at a reduced price. We don’t think there is going to be a huge volume of this.”

One good piece of news for private investors is that NAMA now has an embryonic property team in place. Graham Emmett, former European real estate property financing head at Goldman Sachs, has been appointed head of lending. Notably, he was at London-based private equity real estate firm Delancey prior to Goldman. Another good piece of news is that NAMA’s first deal is rumoured to involve a portfolio of UK loans, in part because there is more liquidity for UK deals. That being said, it doesn’t alter the feeling among many firms that big deals are unlikely to materialise any time soon.