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EUROPE NEWS: NAMA’s great sell-off

Visitors to the Dublin headquarters of Ireland’s National Asset Management Agency (NAMA) – the country’s depository for sub- and nonperforming loans made by its banks – share the same experience: they are taken to a tiny, windowless room behind the reception area that easily could be mistaken for a police station ‘holding cell’.

Since its creation in December 2009, dozens of private equity real estate folk have been in this room before being whisked off by their host to a lift and then upstairs to a more comfortable meeting room with views of the city.

Up until now, opportunity funds have complained (privately) that meeting with NAMA has not yielded much. The common refrain is that it has taken the bad bank an inordinately long time to work out what to do with its €30 billion worth of loans linked to assets in the UK and Europe, plus another €600 million in the US.

Yet slowly, NAMA is making decisions to deal with its huge real estate loan book. The latest sign came on 28 September when NAMA published a tender for firms to pitch to provide loan sale advisory services.

In conjunction with the tender, large loans sales are at long last being made by NAMA. Notably, more than €800 million in loans attached to the Claridges, Connaught and Berkeley hotels in London were sold off last month. The loans had been provided by two Irish banks to the Maybourne Hotel Group to fund the acquisition of the assets in 2005, with NAMA acquiring the loans from those banks at the end of June 2010.

The recent deal saw the loans offloaded for an amount in excess of €800 million to Maybourne Finance, which is a company controlled by Sirs David and Frederick Barclay. In the process, NAMA recovered 100 percent of the original value of the loans, plus interest. In a further deal, it recently agreed to sell the UK’s most valuable car park in London’s Mayfair to billionaire and Phones 4U founder John Caudwell for close to £150 million (€171 million; $235 million).

However, these two transactions are a drop in the ocean compared to the billions left on NAMA’s books. So, in an effort to speed up the process, it published a request for proposal for loan sale advisors to come forward to help sell off the remainder.

NAMA chief executive Brendan McDonagh said: “Loan sales will form a major part of our strategy going forward now that we are almost through the debtor business plans and we’ve gleaned considerable knowledge about the assets and the debtors.” He noted that the appointed loan sale advisors would ensure that any sale of loan books followed a competitive process and achieve the best price realisable. In addition, he confirmed that NAMA plans to offer its first stapled finance package for commercial property, involving a buyer paying up to 25 percent to 30 percent of the asset purchase price upfront, with the remainder being paid to NAMA over an agreed number of years.

Of course, not just anyone can buy these loans. “We will need to be satisfied as to their track record, reputation and capacity to repay, and they will need to be in a position to inject equity capital of 25 percent to 30 percent upfront,” McDonagh said. “This will result in an immediate paydown of NAMA debt and create a performing loan.”

So far, mainly foreign investors have provided indicative interest in purchasing Irish commercial property, McDonagh went on to explain. In an optimistic note, he added: “International investors look to Ireland as a recovery story. NAMA is ready to be innovative in monetising its portfolio with additional initiatives being progressed over the coming months.”

As for the bench of loan sale advisors to be appointed, NAMA is looking for about six advisers in Europe and four for its US assets. The winners will provide their services for a minimum of three years and must have brokered or advised on the disposal of real estate and/or loans with a total aggregate value of at least €1.5 billion within the previous three years in Europe, or $2 billion if bidding for the US portion.

The 49-page tender document is an interesting read. In an almost Kafkaesque addition, under the subheader ‘Communication’ on page 6, it states: following receipt of tenders, meetings may be arranged with one or more tenderers at a location in Dublin to be advised by NAMA. If held away from its headquarters at the Treasury Building on Grand Canal Street, perhaps the bidders will be spared the ‘holding cell’.