How Nama’s billions fed the vulture funds

Inviting Nama to run most of the house-building sector in Ireland is simply allowing it to fix a problem it caused

26th March, 2017

Many informed commentators suspect that Nama has failed in delivering its remit. Research supporting this is published today. The research was produced by economist Jim Power along with an analysis by Lisney Estate Agents, of certain properties which were sold by Nama and subsequently resold by the purchasers at substantial profits. This research shows Nama has significantly undersold properties in its portfolio. At the very least, according to this research, it has failed to realise a staggering €18 billion for the taxpayer.

I had a strong suspicion that properties were being undersold and I commissioned the above research to investigate this.

Jim Power and I believe that the actual figure lost to the taxpayer is likely to be much higher, perhaps as high as €40 billion, which puts it on a scale equating to the bank bailout itself. Unfortunately, it’s impossible to prove this because of the veil of secrecy around Nama, despite Nama being a government-created body.

Eighteen billion euro is nearly half the haircut the Irish banks took on the properties passed to Nama, a cost which was ultimately passed on to the taxpayer.

Eye-watering mistakes

Some of the mistakes made by Nama in selling properties are eye-watering. A site in Dock Mill, Barrow Street, Dublin 4, was sold by Nama for €1.3 million and re-sold within the year for €13 million. Another at Sir John Rogerson’s Quay was sold by Nama for €7.5 million and flipped two years later for €17.5 million. New Century House in the IFSC was sold for €28 million in September 2013 and sold six months later for €47 million.

Considering that Nama had 12,000 loans on its books, it is staggering that on an analysis of just 11 transactions alone we have identified a cumulative loss of €317.6 million to the taxpayer.

The Comptroller and Auditor General’s view is that Nama’s sale of Project Eagle incurred a probable loss to the taxpayer of €220 million. And then there is the reported loss of €460 million from not acquiring discounted junior bonds at a time when Nama was already predicting a surplus.

Together, these make €1 billion of identifiable losses caused by Nama’s management of its portfolio, and the pursuit of a fire-sale strategy underpinned by ill-timed receivership and other forced sales. At the very least it demonstrates a lack of practical or commercial understanding of the property market, its peaks and troughs, and a failure to factor in the inevitable recovery of the market following the harsh adjustment of the bust.

Experienced commercial operators achieved an average uplift of 47 per cent on the 11 analysed transactions over two-three years. Nama is projecting a surplus of up to €2.3 billion - an uplift of 7.23 per cent - in 11 years. This is a risible return on investment. Any bank or investor would laugh you out the door if you were to offer such a paltry return on €31.8 billion.

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Crucially, Nama is choosing to ignore its original remit to claw back the €42-plus billion loss to the taxpayers from the haircut given to the banks. With that in mind, Nama’s €2.3 billion surplus is actually a loss of €40-plus billion, but it seems clear that the agency is trying to spin its way out of this.

Nama is largely responsible for Ireland’s current housing and rental crisis

Nama was originally conceived as an asset management company set up to deal with assets transferred from banks. It was envisaged that the agency would actively manage its loan portfolio over a period of years to ensure that the optimal value was realised for the taxpayer and that all loan agreements were honoured in full where possible. To do this, Nama promised to pursue developers ‘to the ends of the earth’ for all of the money they owed.

It specified at the beginning that where write-downs are taken, this would be offset by other performing loans within the Nama portfolio, realising a greater value than the cost of acquisition. The clear implication was that Nama would do its utmost to recover the entire €74.2 billion worth of nominal debt it acquired.

And yet somewhere along the way, Nama changed the story. As a powerful and opaque body lacking effective oversight, no one could properly examine and understand why.

Even Minister for Finance Michael Noonan was defeatist in stating: “The chance of recovering €74 billion on these loans was lost in the financial crisis.”

From the above research, it is clear the losses suffered by the taxpayer became the gains made by vulture funds and property managers who were much more savvy in their holding and disposal strategies than the people running Nama.

Giving away money

Not only did Nama effectively give away taxpayers’ money to vulture funds, the agency is largely responsible for Ireland’s current housing and rental crisis. Without considering the consequences, Nama instructed house builders to cease new house building in 2010, and the market seized. The agency wrongly concluded that there was sufficient supply of houses in the market. It was a catastrophic decision from which the country has yet to recover.

Nama chairman Frank Daly told an Oireachtas committee in 2011 that he wanted to “walk away from all 850 developers, throw them out and get someone else to run these businesses”.

In retrospect it’s hard to comprehend the mindset of anti-developer bias it took to formulate this narrative.

Nama’s legislation and policy were together a blunt instrument that failed to differentiate between good and bad loans, or between established, reputable builders and other less established and less reputable operators who gave us all a bad name.

Clearly, Nama didn’t accept that professional developers had a significant part to play in the economy, having successfully delivered up to 90,000 homes annually during the sector’s peak. Its policy decision to destroy the good with the bad was counter-productive. As a result, Ireland is now slowly working its way out of the biggest housing crisis in memory, completing fewer than 15,000 housing units last year.

Some builders have decided that working with Nama is the only way to get back in the market. This was not a viable option for me, having had first-hand experience of Nama.

My team watched Nama run my company, Albany Homes, into the ground, unforgivably allowing valuable planning permissions to lapse, thereby creating a minimum two-year delay in securing new permissions. Time and again we found ourselves explaining basic financial and construction concepts to Nama officials. Throughout, the inexperience of the Nama teams was evident. No wonder the vulture funds found them such easy pickings.

What’s abundantly clear is that Nama’s fire sale of the nation’s property assets has allowed vulture funds to make a huge killing. Had the agency opted for a medium to long-term, commercially savvy approach over its knee-jerk, panicked and inexperienced reaction, then conceivably, the lion’s share of the €74 billion bank loan value could have been recovered on behalf of the Irish taxpayer.

David Daly has been managing director of several leading housebuilding companies including Manor Park Homes, Albany Homes and Belmont Homes (UK) and is a chartered quantity surveyor by profession. He was the first developer to exit Nama.

Immediately afterward, identical, untrue reports appeared in the national newspapers that Mr Daly’s exit settlement included payment of monies outside of Nama’s remit. The newspapers have subsequently published apologies and withdrawn or corrected their reports.

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