Toward the end of 2009 the Republic of Ireland’s then government passed legislation which would lead to the creation of the National Assets Management Agency (NAMA). The role of NAMA was a simple one: to remove toxic debt from the books of the Irish banks to assist in attempts to revive the national economy. The security would be acquired at a discount and purchased with Government backed bonds. In the first phase of NAMA (focusing on mortgages and other secured facilities with a minimum value of £20m) over £80bn in toxic debts were acquired. Whilst a significant amount of this debt was secured on assets located in Ireland, much (estimates range from £15bn and £20bn) is secured on property located in England’s major cities as the Irish banks were keen (as of course were the major UK banks) to plough money into the British property market in the 10 years before the recent downturn. This means that the role of NAMA on the British property market cannot be ignored.
The role of NAMA: the review stage
Following the acquisition of these debts NAMA took time to analyse precisely what it had. It certainly appears that the Agency has completed its exercise and formed a view as to which assets it intends to sell (in order to release funds to subsidise the genuinely bad debts) and which assets it intends to try and manage (to ensure that the security is not jeopardised).
That NAMA is taking such steps is evidenced by its announcement of a panel of insolvency practitioners and property managers in November last year. It can also be seen from its recent actions both here and in Ireland.
The role of NAMA: the management stage
It was widely reported in the press that a deal has been struck to sell the recently completed Montevetro building in Dublin to internet giant Google for around £100m. NAMA acquired security over the building and funded the completion of the building before sanctioning its sale to Google.
The relationship between NAMA and the Maybourne Hotel Group, which owns Claridges amongst other luxury hotels, has also been the subject of much recent press coverage. Most recently that coverage has concerned the Dublin Supreme Court’s decision that the acquisition by NAMA of Maybourne debt was of no effect, it having been purportedly acquired before NAMA had been legally established. However prior to that finding the stance taken by NAMA appeared to be a more humane one, providing the group with more time to secure alternative financing rather than seeking to force through a sale. This it believed it had the power to do prior to the decision of the Supreme Court. It should be said at this stage that the acquisition of the Maybourne loans is just one element of this ongoing litigation: the litigation concerns the very creation of NAMA itself and could impact upon its future role and indeed its very existence (which will be touched upon below).
Others have not been looked upon as favourably as Maybourne. Time appears to have been called on loans secured over One King William Street in the City of London (presently occupied by Rothschild) where receivers have been appointed. The same fate appears to have befallen Irish building companies McEnany Construction and Michael McNamara and Company. Logic would dictate that in all these cases NAMA sees the potential for realisation but needs to take steps to ensure that its security is not jeopardised. This could be through developing a cogent strategy for maximising rental income from a building, as might be so in the case of One King William Street, or ensuring that developments are completed, or development land is sold off at the best price reasonably achievable, as might be so in the cases of McEnany and McNamara.
The creation of a panel of property managers and insolvency practitioners, as well as the illustrations above, lead to the conclusion that NAMA is now in a position to take an active role in managing its assets.
The impact of NAMA on tenants
So far as tenants of NAMA - managed real estate are concerned this might result in a more aggressive management strategy, particularly in relation to rent and service charges, on the part of the landlord / NAMA as cash generation is maximised and unnecessary expenditure minimised. When it comes to the end of commercial leases tenants who wish to remain in business occupation may find it more difficult to agree terms with their landlord as NAMA’s intention for the building will govern the stance that the landlord will take when it comes to granting new leases (or not as the case may be). However these changes aside the tenant ought not to experience any great change.
The impact of NAMA on debtors
The same cannot of course be said when considering the landlord or developer who would be the toxic debtor in the eyes of NAMA. NAMA has to date indicated a willingness to work with businesses (for example by providing a period of grace rather than calling in loans, appointing receivers rather than commencing a winding up). Perhaps this stems from its role as a state created bank with the intention of assisting in the economic recovery of Ireland. Perhaps however it is more to do with the power that NAMA has over its debtors and the extent to which a debtor is able to reject or modify that proposal.
The future for NAMA
The acquisition and management of loan books during the early part of 2010 was intended to be phase 1 of 3. Under phase 2 all remaining property loans (whether good bad or indifferent) held by AIB and Bank of Ireland would be acquired by NAMA and would undergo the same treatment as the larger loans acquired in phase 1. Phase 3 concerned the acquisition of specific categories of loan not falling within the first two phases.
Whilst it would appear that the role of NAMA within phase 1 of the project will not change in the immediate term, the future for phases 2 and 3 is now uncertain. Some say that the scope of phase 2 extends to poorly performing loans. Other say that phase 2 (and by extension phase 3) will not happen at all. The change in position is in some part driven by the anticipated introduction of a Labour / Fine Gael coalition and each party’s stated intention to put a halt to bank bailouts. In other respects it is driven by ongoing court proceedings under which the creation of NAMA itself is being challenged, the outcome of which at present is not known.
Given the above we simply do not know what the future holds. If we assume that NAMA is to exist in its current form however, affected property owners and developers may find themselves between the proverbial rock and hard place whereas tenants may well find their landlords (under NAMA’s influence) taking a more aggressive stance on matters of leasehold compliance, rent review and on lease renewal.
Whether this will remain the case under a new Irish Government remains uncertain.