WHEN IT WAS set up, Nama was billed as the world’s biggest landowner.
It had one objective: to clean up the Irish property market, expunging the thousands of unsustainable loans advanced during the boom, and allowing the banks to get back to ‘normal’ lending.
At its inception, the idea of profit seemed far fetched.
Five years later, Nama is planning to change direction, and potentially become Ireland’s biggest landlord.
On top of this, it may even return a profit to the state – relative to what was paid for the discounted loans that were transferred into the agency.
What’s happening?
Yesterday Nama chairman Frank Daly and Minister for Finance Michael Noonan announced that the agency will change focus and move into property development alongside its original loan disposal brief.
Read: Pathway to ‘Dublin’s Canary Wharf’: Nama’s €3 billion property play
The agency will focus on two additional briefs – firstly, to oversee the development of the Strategic Development Zone in Dublin’s docklands, and secondly, to drive the construction of new homes in the city.
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Nama has put aside up to €1.5 billion for each project. It’s not clear exactly how this cash will come into the equation, but it could eventually be deployed as finance to joint venture partners.
Why is this happening?
As mentioned already, Nama was set up to dispose of the bad property loans of the boom years. It was originally given until 2020 to complete this task.
That, however, was before the hyperactive level of interest in Irish commercial property that has emerged over the last 18 months.
Such is the appetite among investors, both domestic and international, for bricks and mortar in Ireland, that Nama will most likely get rid of around €15 billion worth of loans this year alone.
The pace of disposal means that the agency could wind up well before the 2020 deadline.
This, however, raises the sticky question of what to do with Nama.
Whither Nama?
Under the review announced yesterday, Nama will now dispose of 80% of its loan book by the end of 2016. The hope is that this will cover the repayments to the state, with the remaining 20% seen as an opportunity to make a profit.
Michael Noonan said that he wants the sale of all the entire loan book concluded by the end of 2018.
The logic is simple enough: the Government wants to strike while the iron is hot, taking advantage of Ireland being in vogue with buyers, and draw a line under the whole saga.
However, one of the main problems is holding on to enough staff with the expertise required to finish the job.
Nama staff have accumulated a skill-set which is in great demand in the private sector, while their wages are limited under Haddington Road, and the security of their posts is flimsy, with p45s guaranteed whenever it is that Nama closes its doors.
This was spelled out in the review released yesterday by the Department of Finance:
If Nama is unable to remain competitive in terms of compensation levels and professional experience and development, Nama will likely find it difficult to retain its highly skilled workforce to the detriment of the ultimate return to the state.
On top of this, the Government has a major problem with property prices in the capital.
A supply shortage is sending residential prices rapidly upwards, while as Noonan outlined yesterday, the private construction sector is not yet repaired to a degree where it can build out the units necessary to keep prices under control.
Read: Why is this house so expensive?
The same dynamic is affecting the market for office space in the city. Competition is forcing prices upwards, with insufficient supply coming on-stream to meet demand.
Read: Dublin office rent has grown by nearly 25% in a year
Minister Noonan and Nama hope that the new plan will solve all three problems in one fell swoop: provide more security for Nama employees, keep down office rents in Dublin, and alleviate the growing housing crisis in the capital.
Will it work?
Ultimately, only time will tell.
On the first count, Nama employees will doubtlessly be pleased that they should be in a job for the next six years. That, however, doesn’t diminish the charms of new opportunities.
Yesterday, Frank Daly and Michael Noonan seemed to rule out wage increases for staff.
The bad bank itself is likely to continue lobbying Government for flexibility on wages, with no guarantee that Noonan’s department or any successive administration will give in.
Upping the wages of Nama staff will never be a politically palatable move. Meanwhile, those alternative offers won’t be going anywhere any time soon.
Even on its primary objective of unloading bad loans while the going is good, success is not guaranteed. Interest in the Irish market is being driven largely by the large amount of liquidity and debt on offer in the US.
Cash rich buyers are hungry for assets – in this case loans and property – that will give them a return on investment. With interest rates sure to rise eventually, Nama knows that this won’t last forever.
A shock to the market could send investors scurrying, and put pay to Nama’s plan almost overnight.
When it comes to the property development play, Nama will hope that it is able to transform its pipeline of notional residential units into real houses.
Only 3,000 properties are ‘shovel-ready’, with planning permission in place. The vast majority, some 19,000 units, need to get planning, finance and construction partners in place.
Finally, the development of both the residential units and the Dockland’s answer to Canary Wharf is fraught with political danger.
Nama has already said that it is willing to do business with major developers that had their loans transferred into the agency. The sheen could be taken off any project, no matter how grand in scope and ambition, if a familiar face is co-opted into the project.
How, for example, might the plain people of Ireland feel if a Johnny Ronan or equivalent were called into action in the Docklands?
The verdict
What transpired yesterday was not a master stroke.
It was a pragmatic response to a set of challenges that are the kind of problems that Nama -and the Government – are happy to have. The agency would have jumped at the chance to be in this position when it was set up in 2009.
However, yesterday’s announcement has achieved nothing by itself.
There are still plenty of risks and hurdles to be cleared before the Nama saga can be deemed a success – and has been painfully apparent, nothing makes a mockery of predictions quite as completely as the Irish property market.
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