Ireland’s National Asset Management Agency has begun to work at impressive speed. It revealed this week that it has approved €3bn of asset sales as it moves borrowers into the “enforcement” phase.
By the end of last month, it had also agreed a memorandum of understanding with 16 of its top 30 debtors, and was close to completion with a further two. With enforcement procedures under way against another seven of the top 30, and continuing negotiations with five more, expect further, decisive action in the weeks ahead.
While its speed of recent action is impressive, the situation it is dealing with remains dire. Nama revealed a €1bn (£900m) impairment charge on loans and receivables in its audited 2010 accounts, plunging it into a €714m full-year loss.
By the end of March, Nama had acquired €72.3bn in loans from the five participating banks for a total consideration of €30.5bn – an average discount of 58%. Ouch – especially as there is a straight line to be drawn from Nama’s results to those of many commercial banks.
This week Lloyds Banking Group revealed a group impairment charge of £2.6bn (€2.9bn), almost 20% above its expectations. This was, by its own admission, “predominantly due to Ireland”.
Lloyds isn’t one of Nama’s participating banks, though it is the only lender with greater exposure to UK property than Nama. So it won’t surprise that its impairment was greater.
But the reasons for its further impairment charge (on top of Q1 2010’s £2.4bn and Q4 2010’s £3.8bn) will resonate: “We are now allowing for further potential falls in commercial real estate prices in Ireland of approximately 10%.”
Contrast this performance with the rest of the world. Jones Lang LaSalle said this week 2011 would be the strongest year in terms of real estate trading and performance since 2007. Capital values for prime office assets in major cities have risen by 22% over the past year. And while many markets are stabilising, JLL sees “strengthening investment markets, increasing corporate optimism and robust price growth for prime assets across multiple markets”.
The Irish property market is declining in absolute and (to a much bigger extent) relative terms. Until it bottoms out and stops being a drain on the UK banking sector, the recovery in commercial property in much of the UK will not gain ground.
Diverting news from the US this week, where the government asked Congress to sell off – or demolish – more than 12,000 government-owned or leased properties. The Obama administration says the assets are under-utilised or no longer needed.
The White House sees the disposals saving $15bn (£9bn) over three years – about a quarter of the annual cost of running federal government properties. If all goes to plan, a seven-person independent commission of property experts will then determine how to get rid of the properties.
So far, so similar to the UK. But two differences are striking. There are considerable legal hurdles in the US, with as many as 20 laws governing how and when properties can be sold. Whatever our frustrations, thankfully things are simpler here. And the variety of disposal options is striking too. Demolition is being considered as many assets have no market value. Does that make the US unique or simply more realistic than us?
The EG Green Awards launch this week, celebrating the best sustainability initiatives and projects. Categories include green property adviser and green property company of the year, as well as others dedicated to industrial, retail/ leisure, offices, residential, the public sector and regeneration. To enter go to http://www.estatesgazettegreenawards.com
