Jewel Of Denial





From top: Dundrum Town centre, part of portfolio of loans known by Nama as Project Jewel: NAMA board member Brian McEnery  British property giant Hammerson’s statement on Project Jewel, June 2016

Nama Wine Lake writes:

On Sunday last, Brian McEnrey a board member of NAMA was on the Marian Finucane show defending NAMA and badmouthing the Comptroller’s report [Into Project Eagle].

During the interview, Mr McEnry made this statement

“Project Jewel, Dundrum Shopping Centre held until we were at the very height of the market and sold for about a billion euros profit into Nama.”

It has some in the property and investment sectors scratching their heads as to how it could be true.

So what is Project Jewel?

This was a portfolio of loans linked to Joe O’Reilly, a NAMA Top 10 borrower. The loans had a par value of €2.57bn and were secured on collateral which included the Dundrum Town Centre shopping centre in south Dublin, Joe O’Reilly’s 50% stakes in the Ilac centre in Dublin city centre and the Pavilions shopping centre in Swords.

Other property collateral included an area around North O’Connell Street/Moore Street which has planning permission for a major new shopping centre.

How much did NAMA pay for Joe O’Reilly’s loans?

We don’t directly know. We do know the loans were acquired in two steps. Step #1 was in 2010 when NAMA acquired loans for the top developers from several Irish banks and building societies (Bank of Ireland, AIB, Anglo, EBS and Irish Nationwide)

Step #2 was unusual, and involved NAMA buying from Ulster Bank its €129m loans which were secured on the Dundrum Town Centre. NAMA paid Ulster Bank par value for the loans, in other words, it paid €129m.

We do know, in general, that NAMA acquired all of its €74bn loans from the banks in 2010-2012 for at an overall 44c in the euro. NAMA paid less for loans which had poor collateral. Dundrum Town Centre and the Ilac and Pavilions would have been considered good collateral.

How much did NAMA sell Project Jewel for?

€1.849bn was the price when NAMA sold the portfolio in early October 2015. The buyer was a venture between the British property giant Hammerson and the insurer Allianz.

Is it possible NAMA made a profit of €1bn on the sale of Project Jewel?

If the sale price was €1.849bn and NAMA made a profit of €1bn, that suggests the NAMA cost of the loans was €849m (€1.849bn minus €1bn). If NAMA paid €129m for the Ulster Bank loans, that suggests the cost of the other loans was €720m (€849m minus €129m).

Deducting the Ulster Bank loans from the par value of Project Jewel suggests the par value of the Step #1 NAMA loans was €2.44bn (€2.57bn minus €129m). That suggests the NAMA cost of €720m versus the par value of €2.44bn was 30c in the euro, which was worse than the average NAMA acquisition price.

The perceived wisdom would be the cost of Joe O’Reilly’s loans would have been greater than the average 44c in the euro because the collateral was so good.

It seems very unlikely to the point of incredibility that NAMA made a €1bn profit on Project Jewel, at least in the way it was presented by NAMA last Sunday.

There may be complicating factors such as the interest charged on the loans by NAMA in 2010-2015, and NAMA may be including that interest in its “profit”, but that would be disingenuous and at odds with how NAMA’s loss on Project Eagle was calculated.

Was October 2015 “the height of the market”?

No, according to the JLL Irish commercial property indices, prices have been increasing for all property, including retail up to June 2016, the latest period for which JLL has issued its indices.

Between Q3,2015 (the end of which NAMA sold Project Jewel) and Q2,2016, Irish commercial property overall has increased by 9.4%, whilst retail, which forms the greatest element of Project Jewel increased by 8.4%.

Q3,2015 was certainly not the “height of the market”.

Are the buyers now making a profit on Project Jewel?

Oh yes, at least on paper. Hammerson, one of the parties to the venture which bought Project Jewel, issued a statement in June 2016 which said:

“Project Jewel was accretive to 2016 EPS and with opportunities for valuation growth, the portfolio provides an attractive projected five year ungeared IRR of 7-8%, excluding development returns”.

Translated into basic finance, Hammerson expects its purchase from NAMA will make a €870m profit in five years, excluding financing costs, and also excluding any unforeseen profits from developing the properties including the property at Upper O’Connell Street.

Yesterday: Taking The Michael

Nama Wine Lake


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8 thoughts on “Jewel Of Denial

  1. ALisonT

    So much criticism of NAMA focuses on whether they sold before the height of the market. It seems like people want them to hold onto property forever. Almost no one ever sells at the height of the market so it is not reasonable to expect NAMA to.
    Mention of this unfortunately weakens other aspects of the criticism towards NAMA,

    1. b

      also the portfolio was so big that it has to be sold off in chunks so selling it all if you can pinpoint the top is not reflecting any reality

      also NAMA was critiscised for hoarding property which kept prices up – can’t have it both ways

      1. Kieran NYC

        Ha. You must be new here. It doesn’t matter what contradictory arguments you make as long as you’re arguing NAMA is somehow evil and is the illuminati.

        Then you’re grand.

  2. Cian

    This assumes that the loans weren’t being paid off. Dundrum is generating revenue and it is reasonable to assume the rent is being used to paying off the original debt.

    If NAMA bought a (random) load for 100m in 2010 and this was actively being paid off, by say 5m, each year until 2015 when they sold it for 80m.
    The original cost was 100m; there were 6 payments @5m each = 30m; so the outstanding amount on the loan was only 70m by 2015 when it was sold. This would be a 10m profit on that particular loan.

  3. Owen C

    This is not really financial analysis, more a case of speculative number spouting. What’s more, Namawinelake used to have a list of where all the major academics and Irish economists saw (in 2010-11) Irish property prices going over the next few years (ie 2012-13-14), where the bottom would be etc. Almost all saw continued property prices falls and agreed with the idea that Nama had overpaid significantly for the bank loans and would probably make a sizeable loss during its lifetime. Fast forward five years, and everyone is of course now saying that a massive bounce in property prices was of course what Nama should have expected.

    Also, the part on Hammerson’s forecasted profits “excluding financing costs” did genuinely make me laugh out loud.

    1. b

      it would be nice to see that forecast information alright

      but then again, i’m not certain Namawinelake2010 is the same as Namawinelake2016 vintage

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