Nwlvol1issue2

NWL

Irish property, distressed loans, banks, asset management, NAMA Volume 1, Issue 2 10th—16th June 2013

Comer brothers acquire two landmark NAMA properties in Ireland

Inside this issue:

NAMA pursuing fami- 2 lies “to death” says TD Sean Dunne full text of 6 appeal Residential rents up 6% annually

8

Estate agent sued over 9 “negligent valuation” There’s a certain poetical quality to news that the Galway brothers, Luke and Brian Comer have acquired the 2.04 site of the former UCD vets college in Ballsbridge, a property under NAMA’s control, but originally acquired by the Galway brothers, Ray and Danny Grehan in 2004.

Whilst there may be rhyme in the identity of the parties, there is nothing but contrast in the price paid -in 2004, the Grehans paid an eye-watering €171.5m for the site, equating to €84m an acre, today sources indicate the Comers and their Leixlipbased Comer Group have paid €22.5m for the site, or an 87% discount on the 2004 price.

Sources indicate that underbidders for the development site, which was being marketed by

CB Richard Ellis, were Californian real estate/loan investor Kennedy Wilson (again!) and US investor Hines, which you might recall had been interested in acquiring Treasury Holdings’ assets last year. NAMA moved against the Grehans in 2011, having receivers appointed to a considerable portfolio of property including the vets college site. A request for comment from the Comer Group last night has not been responded to at time of writing.

In the Sunday Times today, Gavin Daly reports that the Comers have also just acquired Jim Mansfield’s 690-acre Palmerston House estate and golf course in Kildare from receivers acting for NAMA. The price isn’t disclosed though is said to be less than the €12m asking

price, and there is a distanced indication that the price might have been around €8m. During the boom, Palmerston House was known as a playground for the Mansfields, whose patriarch famously made his fortune on selling machinery and equipment left behind after the Falklands/Malvinas war in the 1982; there was a Jacuzzi on the roof and Ferrari in the drive though it generated revenue as a golf resort. NAMA moved against Jim Mansfield in 2011, with receivers appointed to a range of property including the Weston Aerodrome.

What NAMA didn’t do this week and the NWL Index There were no new applications in Dublin’s High Court where NAMA was either an applicant or defendant.

The NWL index is presently 777.1 meaning NAMA needs a 28.7% average increase in property prices in Ireland and the UK to repay its senior bonds,

*if* NAMA is relying solely on underlying property securities to see loans repaid]

Cranes set to dominate 17 Dublin skies again?

The Week Ahead

19

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NAMA accused of “pursuing families and driving them to despair and even death” Not for the first time, this week, debt collection organizations – which include banks and NAMA – were accused of mistreating borrowers. In the Dail on Thursday 13th June, the Tipperary Independent TD, Mattie McGrath (pictured) stated: ―I have in my hand a coroner's report following an inquest into a businessman's untimely death.

The National Asset Management Agency, NAMA, is pursuing families and driving them to despair and even death in some

cases. It is State terrorism.

These are not my words but the words of the county coroner in Tipperary.‖ Although no names were mentioned, it is believed that Deputy McGrath was referring to the death by suicide of 64-year old Tipperary businessman, Philip de Vere Hunt who was found dead in Cashel in December 2012. NAMA had been pursuing Philip and an associate, Pat Moloughney, reportedly for

€30m.

The Samaritans are available to talk to anyone in any type of distress on 08457 90 90 90 in the UK or 1850 60 90 90 in the Republic of Ireland or by email at jo@samaritans.org

Former NAMA employee threatens to sue Senator - claim

―More disturbing, there has been an attempt by Mr Hennigan to silence me on this issue and to bully me into submission‖ Senator Lorraine Higgins speaking in Seanad Eireann on 11th June, 2013

It’s relatively rare for NAMA to crop up in the under-threat-ofabolition Seanad, but this week, Labour senator and barrister, Lorraine Higgins (pictured) took the opportunity of Minister for Finance, Michael Noonan presenting himself to answer questions in the Seanad, to tackle the minister about concerns that former NAMA employees bring with them a wealth of privileged information of value to market participants.

Senators enjoy privilege in the Seanad and that should be remembered in the context of the criticism leveled by the Senator against a recently-resigned NAMA portfolio manager, Paul Hennigan. The Leas Comhairleach (deputy speaker) in the Seanad asked the Senator to desist from specifically mentioning a third party who was not present to defend himself, and that too should be borne in mind on here.

The Senator referred to reports that Paul Hennigan had recently been appointed a partner at Prime London Partners and raised concerns about the privileged knowledge carried by Paul from NAMA to his new employer.

Paul came to prominence last year in London, when in the

2012 epic High Court battle between Paddy McKillen and the Barclay brothers, Paul and his boss, John Mulcahy appeared on the witness stand to give evidence about their dealings with Paddy McKillen and loans related to the Maybourne group of hotels. The baby-faced Paul was an impressive witness, confidently explaining the history of dealings between NAMA with Paddy McKillen and that evidence prevailed in the ultimate judgment. Paul subsequently came in for criticism later in 2012, when it was reported that Paul had apparently forwarded a confidential offer to a third party.

This week in the Seanad, Senator Higgins claimed ―on Monday morning I discovered a message from him on my voicemail after he called my office asking me to remove from my website what he described as a highly offensive statement regarding my earlier submission on this issue to the Seanad. He indicated that he would take legal action against me because of the insinuations I was making I want to make it clear that I am making no insinuations. I am merely trying to protect the Irish taxpayer from possible improper actions by former employees of NAMA‖ She went on to claim

that she felt bullied. The posting in question on the Senator’s website appears to be this one, here.

No doubt Paul would feel aggrieved if it were to be suggested that he had used, or would improperly use privileged or confidential information picked up during his tenure at NAMA, and to be clear, there is no such suggestion of that here, whatsoever. In the Seanad this week, Senator Higgins was seeking a 1-year period after employees left NAMA, before they could be employed in ―a property-based company‖, on her website posting, she was seeking a 2-year period. Minister Noonan declined to pursue her suggestion, and again said that the 1990 NTMA Act and section 99 and 202 of the NAMA Act 2009 were adequate to put a stop to the potential for shenanigans referred to by the Senator.

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Commercial Leases Database still not launched Another agency operating under the aegis of justice minister Alan Shatter is also experiencing delays. Although we were expecting the launch of the new Commercial Leases Database this week, there is no evidence of the Database on the Property Services Regulatory Authority website and a request

for information about the new database made to the Authority this week has gone unanswered at time of writing.

The new database is expected to contain 20,000 records of commercial rental agreements, and it is being introduced to bring efficiency and transpar-

ency to the Irish commercial market.

Maybe, next week….

Poaching NAMA staff to work in the private sector I know, I know, NAMA itself is supposed to be the ―private sector‖, with 51% of its shares owned by three ―independent third party investors‖, Walbrook, Prescient and Bank of Ireland. But the reality is that it is very much a political, and increasingly politicized animal.

NAMA staff haven’t been happy with their pay and conditions at the Agency for some time, and in April 2013, over 200 of NAMA’s 250 staff wrote a collective letter to the NAMA board complaining about imminent pay cuts that would be imposed under the so-called Croke Park 2 agreement. Bonuses are largely a thing of the past, and there has been a high staff turnover at NAMA for

some time, or at least at the NTMA which provides all of NAMA’s staff – 2% of the NTMA’s 500 staff left in January 2013 alone.

NAMA staff are subject to the 1990 NTMA Act and to the 2009 NAMA Act which requires staff to protect the confidentiality of information gathered during the course of their employment, even after they leave NAMA. In practical terms however, it is impossible for departing staff to suppress or erase the memory of privileged information, and whilst they might not disclose it to third parties, it seems incredible that they would not themselves act on that information.

NAMA asset and portfolio managers and staff should have access to developer business plans, NAMA acquisition values – information which NAMA has bizarrely claimed is not of value – details of loan term, interest rates, key personnel working with developers, key conditions for success of projects, attitude of NAMA to requests for development and working capital funding.

That should make many NAMA staff highly attractive to the army of investors and asset managers seeking out Irish investment opportunities.

NAMA has referred two developers to Gardai on foot of declarations of assets This is old news from April 2013, but the (Irish) Independent reported it as new this week and it seems to have exercised some. When borrowers submit business plans to NAMA, they are generally required to provide an affidavit confirming their statement of affairs, transfers of assets and suchlike, and should false information be provided, for whatever reason, then the borrower potentially commits a crime

which can be pursued by the Gardai. Last year, Minister Noonan confirmed that NAMA was ―considering‖ referring one borrower to the Gardai, apparently for failing to declare all their assets in their statement of affairs. In April 2013, Minister Noonan said that NAMA had in fact referred two borrowers to the Gardai. Given the track record of investigations into socalled ―white collar crime‖ in Ireland, I doubt if the two de-

velopers will be too worried at the NAMA referrals.

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Two NAMA hotels for sale (despite the stated NAMA strategy) Savills in Dublin has been appointed to market for sale two hotels previously controlled by veteran developer, Paddy Kelly, pictured above. The two hotels, current branded as Clarion, are in the International Financial Services Centre in north Dublin docklands and at Dublin airport – listing details from Savills are here and here. It was waaay back in March 2011 that NAMA first moved on Paddy’s assets and the hotels have been under the control of receivers KPMG for some time. The 165bedroom IFSC hotel is on the

market for €30m, equating to €182,000 per room. The 247bedroom airport hotel is on the market for €10m, equating to just €40,000 per room.

The disposal is curious because it had previously been understood that NAMA’s general strategy for its hotels was ―hold‖ – that is what the Comptroller and Auditor General reported in May 2012; it was expected that NAMA would hold onto hotels under its control until 2015 or later.

On the other hand, there has

been an improvement in the fortunes of Dublin hotels generally, and in May 2013, property services powerhouse CB Richard Ellis reported ―There are not enough good quality hotels being released for sale to capitalise on the current volume of demand from international hotel investors, many of whom have been disappointed underbidders on hotels that have come to the market over recent months‖ and that ―Dublin hotel performance [occupany and revenue per room] has improved for 31 consecutive

NAMA has receivers appointed to more Greg Coughlan companies According to the official state journal, Iris Oifigiuil, NAMA has had receivers appointed to two more companies associated with 63-year old Cork developer, Greg Coughlan. On 6th June, 2013, NAMA had Kieran Wallace of KPMG appointed as receiver to certain unspecified assets of the two companies, Moira Properties Limited and Ballycarney Properties Limited – Greg owns half of each company with Brian Madden owning the 20% of Moira and 50% of

Ballycarney, and Brendan Murtagh owning 30% of Moira, according to records on the corporate due diligence website, DueDil.com. Greg is reported to have long ―fled‖ the country, and NAMA has been pursuing debts from him for some time, including via an application in Dublin’s High Court last September 2012.

Greg’s flagship company was Howard Holdings, and it is interesting that the landlord for the Irish Examiner’s offices in

Cork, Kilquane Limited, is seeking to evict the Irish Examiner and up to 550 staff from offices at Lapps Quay in Cork – the latest development in that action appears to be the court order that the premises be vacated by the Irish Examiner by 6th November, 2013 – and that Kilquane is 100% owned by Howard Property Ireland Limited, which is 25% owned by Greg and where Greg is still shown as a director.

More Irish property company foreclosures NAMA has been relatively muted in recent weeks in its foreclosure activity but other lenders continue to make up for the NAMA inactivity with the following foreclosure activity reported this week: (a) Ulster Bank was the dominant lender to the hotel sector during the boom, and this week it was no surprise that it has had the Ballykisteen Hotel in Tipperary wound up, following the appointment of a provisional liquidator to the hotel in May 2013.The 36-bedroom and 45-lodge resort was a favorite for weddings and in May 2013, it was reported that the hotel already had bookings for 75

weddings. On 10th June 2013, Jim Hamilton of BDO was appointed Official Liquidator of the company. (b) Danske Bank had receivers appointed to assets formerly controlled by Johnny Ronan and Richard Barrett’s Treasury Holdings. Michael Hogan of Capital Assets was appointed receiver on 11th June 2013 to unspecified assets of two Treasury Holdings companies, Treasury CMBS Limited and Soffan Limited, which were the subject of a 2004 debenture between the companies and Danske.

(c) Some unusual names cropped up in the receivership of a Dublin property company, Camac Valley Properties Limited, controlled by Ger and Ray Smith. A company HRGT Debtco SARL whose registered office is care of Oaktree Capital Management in Knightsbridge in London had Simon Robert Thomas and Shelley Anne Bullman both of Moorsfields Corporate Recovery LLP, London appointed to be Joint Receivers and Managers of certain assets of the Dublin-based company.

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NAMA suing Galway developer for €108m at Commercial Court This week in the High Court, NAMA was granted permission to pursue its case against Galway developer, Michael Finn, through fast-track procedures in the Commercial Court. A date doesn’t appear to have been yet set for the substantive hearing of the case. NAMA initiated the case in April 2013 against Michael and his wife, Claire, and is reported to be seeking repayment of loans, said to have a face value of €108m.

The case came up for mention before the redoubtable Mr Justice Peter Kelly in the High Court this week, and the Judge agreed to fast-track the application for judgment to the Com-

mercial Court.

It was November 2012, when NAMA moved against the Finns, having receivers appointed to Rathcollon Investments Limited and Rathrippon Developments Limited. In December 2012, NAMA had receivers appointed to assets of two more Finn companies Carmel Quay Limited and Deveronne Investments Limited. The couple are associated with the development of the House Hotel and Spanish Arch Hotel in Galway. It seems from the present court case that NAMA believes that there may have been questionable transfers of assets between the

couple and their children, and that there are assets or income available which might be used to pay down debts owing to NAMA. NAMA has two applications in Dublin’s High Court against the Finns, the second one relating to one of their companies, Quaylane Management Limited.

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NAMA chairman dismisses notion of swap of Ulster Bank for NAMA UK assets ―My Department has held no formal discussions nor is it currently considering taking on the Irish assets of any foreign owned banks operating in the State. However, as you would expect, my Department is regularly approached by members of the financial community with various proposals. All such approaches to my Department are reviewed and considered on their own merits. I am advised by NAMA that the agency has not held any discussions regarding taking on the Irish

assets of any foreign owned banks operating in the State.‖ Minister for Finance, Michael Noonan responding to a question in the Dail on 11th June, 2013 Dismissed by Government politicians and by RBS CEO Stephen Hester, the view on here is that there was probably more substance to the report by the BBC’s Robert Peston over a week ago which claimed that UK politicians were considering a deal whereby Ulster Bank would be swapped for UK

property and loan assets held

by NAMA. This week in the Dail, finance minister Michael Noonan was again dismissive of the proposition, but he was careful to confine his remarks to what he termed ―formal discussions‖ – there was no mention of ―informal discussions‖. The NAMA chairman, Frank Daly was also dismissive of the reported proposition, describing it in comments reported in the Irish Independent as mere ―kite flying‖.

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The weekly Sean Dunne saga – full details of Sean’s US appeal against “parallel” bankruptcy order [Full appeal application available here] ―the Insolvency Proceeding in Ireland Will Impose Irreparable Injury Upon the Debtor‖ from Sean Dunne’s application to appeal a decision by a US judge to allow ―parallel‖ bankruptcy proceedings in the USA and Ireland This week, Irish media stoked up public outrage with a picture of Sean attending an Irish rugby match in Texas, but the real story was the appeal lodged by Sean in the US on Friday 14th June 2013 – full application from PACER here – seeking a stay on the US bankruptcy proceedings pending an appeal

by Sean of the decision of the US bankruptcy judge that Sean should be subject to what has been characterized as ―parallel‖ bankruptcy proceedings in both the US and Ireland. Sean is challenging, what looks to many like, a prospective dogs-dinner of a bankruptcy as two jurisdictions – whose bankruptcy regimes could hardly be more

starkly contrasted – manage the resolution of USD 1bn of declared debts. In Ireland, Sean could be subjected to a 12 year bankruptcy term which would mean he would be aged 72 years when he’d be discharged plus he would face losing his private pension. In Connecticut, USA, the bankruptcy period can be as little as 90 days and pensions are generally protected.

Not surprisingly, Sean uses much of his appeal application to set out how he would be adversely affected by an Irish bankruptcy. He says ―in Ireland, the debtor must wait 5 years to even apply for a discharge and the discharge order may be delayed by as much as 12 years from the commencement of the bankruptcy‖ Sean claims that Ulster Bank’s action against him and seeking to have him bankrupted in Ireland is ―purely political‖ and ―politically motivated to harass the debtor‖.

Sean claims there is no legal authority permitting a second bankruptcy process. Sean emphasizes the US approach to

bankruptcy when he says ―Congress made it a central purpose ofthe bankruptcy code to give debtors a fresh start in life and a clear field for future effort unburdened by the existence of old debts‖ A key plank to Sean’s case for the appeal is his claim that Ulster Bank has so far failed to serve a summons on him, something that was noted with curiosity on the former NWL blog. Sean also says he is ―someone who has not resided in Ireland in six years, has resided in the United States for the last three years with his family, and does not intend to reside in Ireland‖ We wait to hear how the application for an appeal will be treated in the US. Meanwhile, there is a creditors meeting still scheduled for Wednesday 19th June, 2013 when it is expected Sean will finally meet with creditors and their representatives.

Still waiting for Paddy McKillen appeal ruling It’s been more than four months since Paddy McKillen’s appeal hearing of a 2012 British High Court ruling concluded, and we are still waiting on the judgment. This week, the British satirical magazine Private Eye, which in the recent past, has appeared to have an extraordinary insight into Paddy’s epic battle against the billionaire Barclay brothers over control of the Maybourne hotels – Claridge’s, the Berkeley and the Connaught, all in central London, all 5-star - reviewed the recent financial results of companies tied to the 78-year old Scottish billionaire twins now resident in the Channel Islands.

Private Eye suggests that the Barclay twins ―helped fund‖ Derek Quinlan’s GBP 51m (€60m) take-up from the De-

cember 2012 rights issue. It says the Barclays have spent more than GBP 100m buying their 28% stake in Coroin, which ultimately controls the Maybourne hotels and that they have provided guarantees of more than GBP 250m to Coroin’s bankers. The magazine notes that the appeal centres on Paddy McKillen’s rights in respect of Derek Quinlan’s 36% shareholding, but speculates that should Paddy lose the appeal and subsequently see the Barclays take control of Derek Quinlan’s 36% stake, the Barclays would still have to contend with Paddy having a significant 36% minority stake, something they mightn’t be very pleased with. And finally, it is again noted that Paddy may have access to significant financ-

ing from the Middle East.

We don’t know what progress Paddy has been making with refinancing his own loans out of IBRC in special liquidation.

Since the rash of news stories in March and April where Paddy seemed to be frustrated at the response to his offers, all has gone quiet, but we do know that the liquidators at KPMG will only accept 100% of all sums contractually due, before offering the loans to the market.

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Discharge from bankruptcy halted for NAMA developer in a third case If Paddy Power were offering odds on the number of NAMA developers to file for bankruptcy in the UK this year, they would probably be pricing 2030 in the favorite bracket. And some of the bankruptcies are working like clockwork. Paddy Shovlin, the developer of the Beacon South Quarter in Sandyford was discharged from bankruptcy on 29th May 2013 – sources close to Paddy claim he found the process ―painful but ultimately worth it‖. Paddy has been residing in a rented flat in Earl’s Court for more than a year, and his bankruptcy record shows his occupation as a ―property management and consultancy director‖.

His erstwhile associates Patrick and Tony Fitzpatrick have not had such an easy ride

with their discharges from bankruptcy now both halted; Patrick was scheduled to be discharged in April 2013 but his insolvency practitioner, Tina Bullock of Crossfields, has objected to the discharge ―under Section 279(3) of the Insolvency Act 1986 until the fulfillment of conditions as specified in the Order made by the Court and effective from 19 March 2013‖ Patrick’s brother, Tony was scheduled to be discharged on 28th May 2013 but again, the insolvency practitioner, again Tina Bullock, has seemingly objected ―under Section 279(3) of the Insolvency Act 1986 until the fulfillment of conditions as specified in the Order made by the Court and effective from 24 May 2013‖ The Fitzpatrick brothers join

Wexford developer Martin Doran of Ellen Construction whose own discharge from bankruptcy was halted in December 2012, and who is now subject to what the British call a ―Bankruptcy Restriction Undertaking‖ (BRU) which is scheduled to last for seven years until April 2020. A BRU may restrict a bankrupt in ―borrowing more than £500 without telling the lender you’re bankrupt, acting as a director of a company, creating, managing or promoting a company without the court’s permission, or managing a business with a different name without telling people you do business with that you’re bankrupt‖

Counter-balancing details emerge in Kennedy Group foreclosure

When NAMA moved to foreclose on loans owed by the Northern Ireland developer, the Kennedy Group, in April 2013, its principal Alistair Kennedy spoke with the BBC speaking of his surprise at the move which saw a number of assets including the Ramada Portrush Hotel coming under the control of administrators.

At the time, NAMA declined to comment on the specific case but said that in general, foreclosing on loans was a last resort. This week, via the BBC,

we get some further detail from the NAMA perspective with details emerging from a recent administrators’ report. Although not named by the BBC, the administrators were previously reported to be Belfastfirm RSM McClure Watters. It seems, according to the administrators’ report outlined by the BBC, that between 2008 and 2011, the Portrush hotel had been funding repayment of GBP 8.5m (€10m) of loans originally extended by Anglo to a Kennedy group company, but that

in 2011, that funding ceased, and it was this act/omission which ultimately led NAMA to seek to have administrators appointed. The administrators’ report goes on to say that NAMA, as the assignee of the Anglo loan, faces a ―significant shortfall‖ on the face-value of the loan, though we don’t know what NAMA paid for the loan; on average, NAMA paid 37c in the euro, on average, for Anglo’s loans or approximately €13bn for loans with a face value of €35bn.

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Irish residential rents continue robust growth with 0.5% increase in May 2013, 5.6% on annualized basis The gold-standard for tracking Irish residential rents is now the quarterly index produced by the Private Residential Tenancies Board (PRTB). The PRTB holds details of all private rental agreements in the State, which, according to Census 2011, number about 323,007 households, a stonking 120% increase on 145,317 households privately renting in 2006. There are, according to Census 2011, 1.65m households in Ireland.The details held by the PRTB include the address of the property, the number of bedrooms and monthly rental and the PRTB is ideally placed to produce an index, but at pre-

sent it is quarterly with the next publication expected in August 2013.

Meanwhile we have the monthly inflation figures from the Central Statistics Office (CSO), and one component of the inflation headline, is the change in ―private rents‖. The CSO has a network of estate agents throughout the country, with whom it consults to track rents, and this is the best we get on a monthly basis for actual rents.

This week, the CSO announced CPI inflation was down 0.1% in May 2013 compared to April 2013, and up just 0.4% on an annual basis – this is the lowest

The ―private rents‖ component of the headline inflation figure continues the run of robust monthly growth that started last September 2012. These rents increased by 0.5% in May 2013, following monthly increases of 1.0%, 1.0%, 0.2%, 0.1%, 0.7%, 0.6%, 0.7% and 0.9% in April 2013 back to September 2012. Private rents are up by 5.6% on an annual basis as shown above in the CSO ex-

tract of the housing-related costs. Below are the private rents indices tracked on here which show an annual increase of 6.1%, slightly above the CSO’s figures but due to rounding differences.

The CSO does not provide any regional breakdown of rents; the PRTB which tracks regional

annual increase since August 2010. CPI inflation is up by just 2.3% between the 5.5 years between September 2007 and May 2013 – index in September 2007 was 103.9 in May 2013 it is 106.3.

actual rents and Daft.ie which tracks regional asking rents both report the pace of increase is greater in urban areas such as Dublin.

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UK commercial property prices flat for third month in a row in May 2013

This week, IPD published its monthly series of UK commercial property prices. The IPD index is the only UK commercial index referenced by NAMA’s Long Term Economic Value Regulations (Schedule 2).

For the third month running, the Index shows that capital values were flat on a monthly basis, which follows immediately-previous declines averaging 0.3% per month since December 2011. Prices reached a peak in the UK in June 2007 and fell steadily until August 2009 when a rally started.

Prices then increased by 15% in the year to August 2010 but have since been declining and

are down by 1.5% in the last 12 months alone.

There is some recent evidence of a flattening in prices which represents an improvement from the declines that kicked in from August 2010, and it is noteworthy that the UK’s independent Office for Budget Responsibility predicts commercial property prices to change as follows between 2013-2017: -0.1% in 2013, 2.6% in 2014, 3.6% in 2015, 3.8% in 2016 and 3.4% in 2017.

the first five months of 2013, it would appear that a modest increase is in store for the remaining seven months of the year.

UK commercial property prices are now down 37.1% from peak, and up 6.3% from November 2009, the date selected by NAMA, by reference to which it valued the €74bn of loans it acquired from the banks for €32bn.

With prices down 0.6% in

Estate agents sued over “negligent valuation” ―My hair, what's left of it, was standing on end‖ Michael Gerson of Aurora Leasing upon learning that the valuation of a property used to guarantee a loan had halved from £5m to less than £2.5m in a year.

Usually in the aftermath of property bubbles and crashes, you can expect a flood of litigation aimed at professionals who may not always have performed at their best when dealing with massively increased workloads during the boom. You would have expected a considerable number of lawsuits in Ireland against valuers and solicitors for work done during the manic days at the top of the market, but to date, these lawsuits have not materialized.

In Northern Ireland this week, there was news of a relatively minor case taken against estate agents and valuers, Colliers, apparently on foot of a GBP 5m valuation of a Northern Ireland mansion which today might be worth just GBP 1.5m. A London company called Aurora Leasing had loaned GBP 1m to a Belfast businessman, Paul Campbell, partly secured on a mansion, the valuation of which is the subject of negligence proceedings. The loan has gone bad, and Aurora is second in line to seek repayment from the disposal of the mansion, but look like they won’t receive anything.

The mansion, Terrace Hill in the Shaw's Bridge area of Bel-

fast, was apparently valued by Colliers at GBP 5m in 2009, less than a year later it was valued at less than GBP 2.5m and is said to be worth just GBP 1.5m today. Colliers is defending the action. It should be stressed that it is not suggested here that Colliers did perform a ―negligent valuation‖ or that any of its work was substandard. The hearing continues.

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121 Lots to be offered in next Allsop Space auction in July 2013 Irish property auction stellar success, Allsop Space will be holding its next auction on Thursday 4th July 2013. The auction will be held in the usual place, the Shelbourne Hotel on St Stephen’s Green in Dublin city centre with a new starting time of 9.45am with the first Lot offered from 10am. The online catalogue is now available here. Amongst the 121 Lots which have maximum reserves – prices above which the winning bidder is guaranteed to get the Lot, actual reserves might be lower – of €12,270,000 is a shopping centre in Ferrybank, Kilkenny which was developed by Noel

Burke and John Staunton’s Jaytar Limited, but which is now controlled by receivers, Kavanagh Fennell. The 54,000 sq ft shopping centre is completed to shell-and-core level, boasts 20 units and is said to have been valued at €20m during the boom and is being offered with a maximum reserve of €225-275,000. The Lots offered are a mix of owner and receiver vendors with a strong emphasis on commercial property.

You can see the results of the last Allsop Space auction on 15th May 2013 here.

Two surveys point to decline in construction sector This week, the Ulster Bank Purchasing Managers’ Index for May 2013 was published. The index tracks activity and new orders in the construction sector about expansion and contraction, an index below 50.0 indicates contraction and decline in activity, above 50.0 indicates expansion and increase in activity. The May 2013 index was 42.0 indicating considerable decline. There have now been six years of monthly

declines. Each of the three components of the construction index, housing, commercial and infrastructure remain in the 34-44 range.

The Irish organization, Link2Plans tracks new residential planning applications, and this week it reported that for the first four months of 2013, there were 3,857 planning applications, down 7% on the 4,145 planning applications for the same period in 2012. The sur-

vey also tracks commencement of construction and recorded 1,488 new commencements in the first four months of 2013, down 15% from the 1,746 in the same period in 2012. Dublin applications and commencements bucked the national trend and were up.

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NAMAed Paddy Doyle files for bankruptcy in the UK The Sunday Business Post reported on Sunday 9th June, 2013 that Irish developer Paddy Doyle had filed for bankruptcy in the UK and if successful, would be declared bankrupt in July 2013; if this happens and the bankruptcy follows a natural course, then Paddy can expect to be discharged after 12 months in July 2014. NAMA foreclosed on loans to Paddy’s companies at the start of 2011 when it moved against Arcadia Developments, Mellview Estates, Mellview Properties, Mellview Contractors, Lydonbarry Properties and Lyndonbarry Estates. Cavan developer Paddy, is linked to the development of the M1 retail park in Drogheda, Arcadia retail park in Athlone, landbanks and apartments in Dublin’s Ballymun including 266 partments in the

Parkview scheme in Poppintree.

NAMA was said to face a €200m exposure to Paddy’s loans.

Paddy will join an increasingly long line of NAMA developers filing for bankruptcy outside (the Republic of) Ireland. According to the NAMA 2012 Annual Report, 48 NAMA developers had been declared bankrupt up to December 2012 – 37 in the UK and 11 in (the Republic of) Ireland. It’s not clear where Tom Kane’s Florida bankruptcy was recognized in NAMA’s figures, but we do know that there has been a steady stream of new bankruptcies since December 2012, so the 48 headline number will have been swelled since then.

For interest, neither John Fraher nor David Cullen appears to have been declared bankrupt yet, according to records from the British Insolvency Service.

There had been references to both NAMA developers pursuing a British bankruptcy in recent court proceedings, but it appears that neither has – as at 15th June 2013 - actually been declared bankrupt. The former NWL blog tracked a selection of NAMA bankruptcies which presently stands as follows:

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Changes by Department of Social Protection to residential rent assistance levels Okay, this is from the previous week, but the new Irish rent assistance levels will be effective from next Monday 17th June 2013. Rents in some urban areas, notably Dublin, are being increased modestly whilst most provincial rent assistance payments will fall. The announcement by the Minister for Social Protection, Joan Burton is available here and the new maximum monthly rent limits are shown here together with the previous payment limits which came into effect in January 2012; the previous adjustment in January 2012 was particularly harsh with some rent assistance levels declining by 29% are

shown here.

Property market observers will not be surprised by this development. The trend of increasing rents in Dublin and some urban areas has been obvious for some time, with rents nationally increasing by 6% in the past 12 months, with higher increases in urban areas partly offset by lower or flat growth in provincial areas.

The biggest decline announced by the Minister two weeks ago, was in county Wicklow where monthly rental for a couple with three children where the maximum monthly rent limit

falls by 16% from €740 to €625.

In Dublin, some monthly rent limits have been lifted by 11% or €75 per month. The largest increase was in Sligo where the maximum monthly rent limit for a single person has increased by 18% from €340 to €400 per month.

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Fitch and the Irish banks Bank of Ireland shares closed the week at 16c, down more than 10% from 18c at the start of the week. Credit rating agency, Fitch, was blamed for the decline with a new report last Monday which confirmed a widespread view that Irish banks still face huge challenges.

Fitch’s report titled ―Peer Review: Irish Banks‖, subtitled

―Balance Sheet Progress, but Profitability Elusive‖ is available here for free but you will need to register with Fitch.

Fitch says it believes mortgage arrears will peak in 2014, says that banks continue to face preimpairment profitability challenges and is not predicting a return to operating profitability

until ―at least 2015‖; for information 99.99% state-owned AIB/EBS was predicting a return to profitability in 2014. Fitch is also predicting an increase in impairment provisions in 2013 and 2014 as banks are persuaded/frogmarched into dealing with arrears, particularly

Personal Insolvency looms ―Preparations to make the new personal insolvency framework operational by end June are well underway. The Insolvency Service has disseminated comprehensive information on the new debt settlement procedures, including the Reasonable Living Expenses Guidelines.

Regulations for the licensing and regulation of personal insolvency practitioners are about to be finalised, and the appointment of specialist judges is expected by June‖ Memoran-

dum of Economic and Finance Policies between Ireland and the programme finance Troika June 2013 In just two weeks, Ireland is supposed to have its new personal insolvency processes up and running, though as at May 2013, not a single person or firm had been authorized to act as personal insolvency practitioners, according to justice minister Alan Shatter. The Insolvency Service of Ireland has been

remarkably mute of late, and whilst you would hope that they are quietly and efficiently working towards a launch, the suspicion is that it won’t be prepared for what is likely to be a stampede of applications for each of the three new processes.

2013 Irish bank stress testing – a game of two halves ―The timing of the stress tests is under discussion at the present and no decision has been taken in this regard.‖ Minister for Finance, Michael Noonan responding to a question in the Dail on 11th June, 2013.

Despite Minister for Finance, Michael Noonan’s statement on Tuesday this week, by Thursday, the outgoing/resigning Financial Regulator and deputy governor of the Central Bank of Ireland, Matthew Elderfield was more forthcoming when he appeared before the Oireachtas Committee of Public Accounts (PAC) – the transcript of the hearing is not yet available but the stress testing topic was covered by the press. And for the first time this week, we learned that the new round of stress testing of Irish banks, is scheduled to begin in 2013 but

will not be concluded until the first half of 2014. The objective of stresstesting the banks is to predict what additional capital may be needed under certain projected conditions. The last stress testing took place in January-March 2011, and concluded that our banks needed a €24bn additional capital injection, which ultimately came from a mix of sources, mostly state bailout but also haircuts on certain subordinated bonds. This year’s stress testing has been the subject of a tug-of-war between the Irish government and the programme finance Troika with the latter wanting the stress testing done-and-dusted before the last tranche of ―bailout‖ funding is handed over at the end of 2013, the Government, on the other hand, has wanted to defer the stress testing completely until 2014.

Most attention will inevitably focus on Bank of Ireland, and its capital needs.

Matthew Elderfield noted that banks

can access additional capital through three channels - enhanced profitability, private investors or from the European Stability Mechanism. It remains unclear how it would be determined if the ESM would provide capital to Bank of Ireland, though remember Ireland has so far contributed €764m to the ESM - €509m in 2012 and €255m up to the end of May 2013.

Minister for Finance Michael Noonan has recently stated that the State will consider any additional demands from a rights issue - 35% of Bank of Ireland remains in the hands of four North American investors, Wilbur Ross, the Capital Group, Fairfax and Kennedy Wilson and certainly, Wilbur Ross has expressed satisfaction with the investment he acquired at 10c per share which is today worth 16c a share, so private sector investment might be forthcoming.

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Bank of Ireland seeks to enhance profitability with new retail banking fees

This week we learned from the Central Bank of Ireland that interest rates offered on deposits were declining, interest rates on lending were increasing, and we had Bank of Ireland announce new fees and account maintenance charges. It’s not rocket science – the banks are ―rebuilding their balance sheets‖ by enhancing their profitability and deterring customers from using expensivelyprovided services, moving them to more-cheaply-provided online services and generally ―selling high, buying low‖ when it comes to interest rates.

With the State owning 99.99% (estimated, after the recent issue of ordinary shares in lieu of preference share dividend) of Allied Irish Banks/Educational Building Society, 99.5% of Permanent TSB and 100% of the remnants of Anglo Irish Bank and Irish Nationwide Building Society, and 15% of the ordinary shares of Bank of Ireland alongside substantial preference shares, competition issues may raise their heads sooner rather than later.

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Irish banks facing twin challenges of arrears and personal insolvency protection This coming Friday 21st June 2013, will see the publication of the latest residential mortgage arrears and repossession information by the Central Bank of Ireland, in respect of the first three months of 2013 – the scheduled publication is a little later than usual. There has been a slowing in the rate of increase in the previous two quarters, but the overall level of mortgage arrears continues to grow.

The Central Bank, closely supported by the Department of Finance has imposed an initial target on banks to provide restructuring solutions to at least 20% of mortgage accounts in arrears by 30th June 2013.

Although Minister Noonan was coy about the precise numbers, it seems on here that banks would need to propose solu-

tions to holders of approximately 25,000 accounts – that being 20% of the c125,000 principal private residence and buy to let mortgages in arrears of more than 90 days at the end of 2012. The banks face penalties from 2014 if they fail to meet the targets, with one penalty being the forcedrecognition of losses on mortgages, whereby the banks need to write the value of mortgages down to the value of the (distressed) underlying property.

Separately, we are also nearing the end of June 2013, which is the target date for the commencement of the new personal insolvency processes, but there has been little recent information forthcoming from either the Insolvency Service of

Ireland or the responsible minister, Alan Shatter. We do know that Minister Shatter has consistently predicted ―15,000 personal insolvency applications, 3,000 to 4,000 applications for debt relief notices and 3,000 bankruptcy applications in a 12 month period‖. During the week, we learned that the Central Bank is proceeding with its own customized debt resolution process, despite opposition from the Irish League of Credit Unions.

It seems that the landscape will change utterly in coming days.

Another hurdle overcome - Local Property Tax implementation successfully implemented Despite the widespread opposition to the €100 flat-rate Household Charge in 2012 which resulted in a 50% noncompliance rate at the end of the March 2012 deadline, the implementation of its successor, the Local Property Tax in 2013 has been a resounding success from a tax administration viewpoint. At 29th May, 2013, of the 1.69m residential units that the Revenue Commissioners believe should be subject to the tax, there were 1.54m returns.

Minister for Finance, Michael Noonan this week said in the Dail that the Revenue Commissioners were confident that the target revenues to be raised from the property taxes -

€250m in 2013 and €500m in 2014 – would in fact be raised.

A total of €121m has already been transferred to the Exchequer in respect of the tax ahead of the payment deadline of 1st July 2013. Minister Noonan did not respond to questions asking a breakdown of returns by county or value banding. It is another major hurdle overcome in complying with the Memorandum of Understanding between Ireland and the programme finance Troika.

It brings to mind the wise words of Jean-Baptiste Colbert, finance minister under Louis XIV in 17th century: ―The art of taxation consists in

so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing‖

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BoSI €2bn residential loan portfolio sale on hold pending clarification of Judge Dunne’s repossession ruling ―We recognise the need for efficient repossession procedures to promote the completion of sustainable mortgage solutions.In March, we published the Land and Conveyancing Law Reform Bill 2013 to remove unintended constraints on repossessions for mortgages created prior to December 2009 as identified by case law.

We are seeking passage of the legislation before the start of the Oireachtas summer recess.

We will keep under review the capacity of the Court system in relation to repossession cases and the effectiveness of statutory repossession arrangements as set out in the MEFP for the 9th review.‖ Memorandum of Economic and Finance Policies between Ireland and the programme finance Troika June 2013 The ruling by the Dublin High Court judge, Ms Justice Elizabeth Dunne in July 2011 which bars mortgage lenders from

repossessing homes on foot of mortgages advanced before December 2009, is being addressed by Irish legislators and according to documents published this week by the Department of Finance, the loophole will be addressed by the end of July 2013 when the Dail breaks up for its summer recess. A casualty of the present lacuna is the planned sale by Lloyds Banking Group of a large portfolio of Irish residential property loans.

This week, the British commercial property portal, CoStar reported that Lloyds was putting on hold the planned sale of ―Project Porter‖, a portfolio said to have a face-value of €2bn and which relates to Irish residential investment, presumably loans originally advanced by Lloyds’s subsidiary Bank of Scotland (Ireland) before it closed for new business here in 2010. The uncertainty over repossession rights is

blamed for the deferral of the sale.

Should the planned legislation by the Government be delayed or watered down or create uncertainty, you can expect the consequences on Irish banks to be profound. Repossessions in Ireland number about 600 per annum – if we were to adopt a foreclosure/repossession regime akin to that of our nearest neighbour, the UK, then annual repossessions would be approximately 15,000, and remember we have a pent-up backlog. If banks are unable to repossess, then they may find their loans to be totally worthless under the new bankruptcy regime.

IBRC UK and German loan books for sale It was claimed this week that GBP 6bn (€7bn) IBRC loanbooks relating to UK and German property assets would be brought to the market in October and November 2013, though feelings towards any IBRC disposals were dampened last month when it emerged that discount rates used to value future cash flows were set at around 4.5%, which many deemed to be too low to be realistic.

There was speculation in 2012 that IBRC’s disposals would be priced at what the market believed was a more realistic 8% discount rate. Indeed the market gossip is that IBRC recommended an 8% discount rate to the Department of Finance in late 2012, when the Department was already actively considering the short-term liquidation of IBRC. In simple terms, the discount

rate is part of a calculation of a deduction from the future value of an IBRC asset to arrive at the present-day value, the higher the discount rate, the lower the present-day value.

CoStar reported that the UK portfolio includes ―a 50% stake in the leasehold of Croydon’s Whitgift Centre, Bristol’s Portwall Place, a former west London cinema site in Ealing where Land Securities is preferred developer, as well as Royal Exchange and Finsbury Dials, both in the City of London‖ Minister for Finance Michael Noonan has already signaled that any additional loss at IBRC will be borne by the Exchequer, and there is suspicion in the market that the Minister is trying to avoid crystallizing losses now by applying a realistic discount rate. If the IBRC loans remain unsold, then they will be transferred to NAMA

which will have a longer timeframe over which to work out the loans.

There seems to be much muddiness creeping into IBRC’s dealings. The tentative date for NAMA to take over unsold assets was originally August 2013 but it seems that it will be the end of 2013 by the earliest when such transfers take place, and the betting is the transfers will slip into 2014. As an independent agency whose loan acquisitions have, to date, been subjected to European Commission scrutiny, it is unclear how NAMA can pay a premium for loans it is acquiring. So, setting the discount rate at an unrealistically low level today, may not in fact ultimately benefit the State’s finances.

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Cranes set to dominate the skies over Dublin Docklands again? ―NAMA is devoting particular attention to the Dublin Docklands area, where the Agency holds security over a significant number of buildings and sites.

The area is expected to require significant new development over the medium-term, particularly of commercial office space, to accommodate the continued expansion of the International Financial Services Centre (―IFSC‖) and the creation of new business and technology hubs linked to existing companies such as Google and Facebook‖ NAMA Annual Report 2012 ―It is IDA's view that while these essential conditions are

passed on the north side by Sheriff Street Upper and Seville Place and on the south side by Grand Canal Street.

NAMA has indicated the area is of special interest to it, which probably is code for ― a large part of the €2bn of development funding slated for 20122016 will be spent there‖. The IDA has been Cassandra-like in suggesting a demise in Ireland’s attractiveness as a destination for foreign direct investment unless the area can provide

emerging, Ireland could, possibly, increase the job creating potential of the industry by considering the following initiatives: Take advantage of lower property prices, construction costs and State ownership via NAMA to create a next generation IFSC in the Docklands area of Dublin. Develop a new financial and international services district complete with signature buildings. This would provide sufficient real estate for future growth at lower prices; provide increased direct and indirect employment associated with the design and construction phase and jobs in resident companies through the occupation

100,000 sq ft-plus accommodation for expanding and new investors. The Department of An Taoiseach has recently published the March 2013 minutes of the so-called ―Clearing House Group‖ which represents the interests of companies in the IFSC and is joined by Government representatives, all with the aim of ensuring the IFSC remains an attractive hub for international financial services. At that March 2013 meeting, the IDA made a strong intervention in seeking to use

phase. Such a district would also send a strong signal about recovery and Ireland’s intention to regain its status as a viable and growing European economy‖ Minutes of the Clearing House Group March 2013 On Friday last, the Irish Independent reported that NAMA controlled 70 % of the development sites in Dublin’s Docklands – an area still being defined but commonly understood to include the quays on the north and south sides of the Liffey between Sean O’Casey Bridge and the East Link Bridge.

How deep inland the ―Docklands‖ extends is also vague but is probably encom-

NAMA’s sites for development.

In its annual report, NAMA noted with satisfaction the recent designation of part of the Docklands as a ―Strategic Development Zone‖ which means that planning applications should be fast-tracked and that objections will be robustly dealt with. For asset managers, it looks as if this area of Ireland is set to become lucrative.

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A good week for infrastructure and construction in Ireland There have been three announcements this week, which should stimulate activity in the construction sector. In finance minister Michael Noonan’s constituency of Limerick is set for a €250m investment which could create 5,000 jobs in development between now and 2030; the announcement was made this week jointly by Minister Noonan together with fellow Limerick junior minister Jan O’Sullivan and environment

minister, Phil Hogan. In Northern Ireland, the British prime minister, David Cameron, announced a plan to allow the Northern Ireland Assembly borrow GBP 100m (€118m) for new schools and social housing.

Finally, this Government has budged to provide a substantial investment stimulus channeled through the National Pension Reserve Fund, and this week there was an announcement that €6.4bn would ultimately be

made available, with the prime aim of supporting employment; few practical details were forthcoming however, though investment in the water sector seems a likely candidate for some of the investment.

Quinns express concerns at transfer of IBRC assets to NAMA This story can fit 100-150 words.

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Volume 1, Issue 2

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