It will be the end of the traditional property business in Ireland. It makes property development a monopoly for the state
Developer Simon Kelly, who has seen a number of companies he was involved with go into liquidation, speaking to the 'Sunday Tribune' on NAMA
It's still only sinking in with developers that every single land and investment property they own which has outstanding debt could end up in the new National Asset Management Agency (NAMA). Numerous developers late last week were still surprised to be told by the Sunday Tribune that even where they have paid all the bills, their loans could end up in NAMA. "Fecking bastards," was the reaction of one, who questioned why the banks would sell their performing loans. Because they will have no choice, is the answer. The government is to introduce legislation shortly that will give them mandatory powers to acquire the assets.
So what is involved in the €80bn-€90bn loans that are to be transferred? The department says loans for the purchase of land for development and associated work-in-progress arrangements will be included. That means the half-completed 'ghost' estates around the country will be transferred to NAMA. In addition, "certain property investment loans, especially where associated with the largest borrowers" will be transferred, albeit the exact assets are to be considered further.
Sources said that the reason NAMA wants the property investments is that during the term of an investment loan, the rent is generally paid to the bank as part of the repayments. That will give NAMA an income – one source speculated it could be as much as €2bn per annum – helping to fund the interest on the bond it will have to issue to finance the transfer of the loans from the banks to NAMA. The loans are to be transferred with existing terms and conditions, but NAMA will review these.
Solvent developers will have little or no choice in the matter, but the Department of Finance has offered a fig leaf. "Generally speaking, it is not the intention of that the individual borrowers will be able to opt out", but details and legislation have yet to be worked out. That's a chink in the door for those who don't want to be involved. Using the courts, though, offers less hope.
Solicitor and developer Noel Smyth said that banks might be able to challenge the introduction of mandatory powers to acquire loans, on the basis that it is an infringement of rights. However, he feels developers have less grounds to challenge any loans being moved into NAMA. "If a bank wants to assign the benefit of contract to a third party, there's nothing in law to stop that. If they decide they want to sell off the loan, there's no reason they can't," he said.
One major developer, who asked to remain anonymous, expressed fear that the banks would no longer provide working capital for sites until NAMA officially comes into being. "This could take another 12 to 18 months. Why would the banks give more money in the meantime when they might only get 80% of that back. If that happens, we could all go bust," the clearly worried developer said.
In his opinion, there are a lot of developers slightly underwater "or at the break-even point, but at least they know what they're doing. A lot of the syndicates that got involved don't have a clue."
However, economist Peter Bacon, who drew up the NAMA?plan, does not agree with the developers saying that most of the property development companies involved "do not have the depth of management skills to engage in the kind of portfolio sales and work-outs which ultimately are required to resolve the impairment issue".
A second fear is what happens when the loan term ends? Most banks loaned for development and investments on a three-year basis, with new facilities then put in place. NAMA however will not have a banking licence. Will the loans have to be repaid as soon as the facility ends?
A number of experts also expressed fears about the availability of construction finance. "NAMA will have the title and the mortgage charge on the land, so why would anybody loan money to allow something be built without that security," said one senior development land expert.
Bacon has long-fingered that, stating that, while "many of the impaired assets will be capable of achieving higher values if they can be worked out rather than disposed", this shortcoming in their ability to raise finance "cannot be put right now and it represents a significant impediment looking forward to resolution of the impairment issue".
A developer with retail, office and land interests predicted that the models used by the Dublin Docklands Development Agency will be used. When a developer has gone bust and ownership moved to NAMA, it could seek planning permission on the site and then invite tenders from developers to acquire the land. In other cases, a joint development structure could be used with a split-security structure and with profits being divided between the sides.
Others believe schemes will be built using licences, meaning a builder comes in and builds out the site without ever technically owning it. They would be paid a set percentage of the profits as part of the deal. Building on licence was supposed to be banned in 2007, but then Minister for Finance Brian Cowen did not sign off on it and the legislation was eventually put on ice.
So how long could NAMA exist? Ten to 15 years seems to be accepted in the property industry, meaning it is no short-term fix. Numerous people in the industry are wondering where the employees will come from, what inevitably shiny office NAMA will rent and just how the land will be valued before its transfer. The consensus seems to be that the government will overpay, that NAMA will lose the state significant amounts of money, but the government will hope to drag back the difference from the banks in levies afterwards.