Nama: The great property grab
Published 05/04/2014 | 10:30
A leading US investment firm has become Northern Ireland's biggest landlord after completing a cut-price deal for properties controlled by the Republic's toxic bank.
It is thought Cerberus Capital Management paid just a fraction of the £4.5bn face value of Nama's Northern Ireland portfolio.
The deal – reported to be worth around £1.3bn – is the largest single transaction undertaken by Nama and gives Cerberus control of about 850 properties.
Among the assets are the Lanyon Plaza and the Soloist buildings in Belfast.
It also includes properties outside of Northern Ireland, including the UK, Republic and Europe, which are owned by Northern Irish debtors.
First Minister Peter Robinson said the deal was excellent news for the economy.
However, last night questions were raised about the sale, with the Irish taxpayer predicted to take a £3bn hit on the original £4.5bn value on the properties.
Sinn Fein TD Pearse Doherty, the party's finance spokesman in the Republic, said he was concerned Nama had not got the best price for the portfolio.
"While I support Nama's endeavours to dispose of loans effectively, I am concerned that, with six years to go until the agency's wind-up, they may be jumping that bit too soon at interested investors," he said.
Nama – the Republic's National Asset Management Agency – was set up by the Irish government with a 10-year lifespan to free the Republic's banks from the burden of toxic property loans.
Irish banks had lent money to about 55 developers based in Northern Ireland who used the cash to fund some 850 properties.
Around half were in Northern Ireland with the remainder in the UK, the Republic and Germany.
Nama acquired the portfolio – initially worth around £4.5bn – and has now sold it on to Cerberus, a venture capital fund specialising in distressed debt which manages around $25bn in capital.
In a statement, Nama said the terms of the transaction are commercially sensitive and are not being disclosed, but the deal followed an extensive and competitive sales process involving bidders from Europe and the US.
It is understood the portfolio had a minimum reserve price of £1.3bn and it sold for a sum in excess of that figure.
It is possible Nama has made money in terms of what they paid for the loans, but the sale price represents an enormous discount against the original value – and the difference will come at a loss to the Irish taxpayer.
Mr Doherty expressed concerns at the speed of the deal. "This policy of accelerated disposals seems reckless to me," he said.
"A gigantic volume of loans and money has just changed hands and the ball seems to have begun rolling on this only a couple of short months ago.
"Fire sales at the cusp of property prices and economic recovery ring every alarm bell there is."
However, Nama chairman Frank Daly said the transaction represented a significant achievement.
"It is Nama's biggest single transaction to date and we are satisfied that the sales process will deliver the best possible result for the Irish taxpayer," he said.
Nama could not sell assets back to debtors below their par values, but an important feature of the deal is that Cerberus is not bound by this.
Chairman of Cerberus Capital Management, John W Snow, said the deal will be an important foundation for its overall European strategy.
"Cerberus is a patient, long-term investor and has a well-established track record of making significant improvements to the assets that it manages," he said.
First Minister Peter Robinson said the sale was "excellent news for the Northern Ireland economy".
"For some time I have made clear the danger to the local economy of leaving valuable assets undeveloped and the threat that these posed to otherwise profitable businesses. I believe that this deal can be of real benefit to our economy," he said.
Irish finance minister Michael Noonan said the agreement was very good news for the Irish taxpayer, Nama and the Northern Ireland economy.
...and the US company that snapped up the lot
Situated in the heart of New York City, among the towering skyscrapers and high-powered financial institutions which dot Manhattan's skyline, lies the head- quarters of Northern Ireland's newest and – by a margin of several billion dollars – biggest landlord.
Founded in 1992, Cerberus Capital Management is one of the world's leading private investment firms and manages more than $25billion (£15bn) in capital.
Cerberus's senior executive leadership team is filled with one-time political figures including former US Vice President Dan Quayle and John W Snow, who served as the 73rd US Secretary of the Treasury.
It is this group of influential business magnates which now ultimately controls hundreds of sites across Northern Ireland, ranging from a landmark building in central Belfast to a piece of land in rural Tyrone.
Certainly the diverse portfolio acquired from Nama, with its fields and farmland, will be quite a contrast to Cerberus's recent purchases.
Last month it led a consortium which agreed a $9bn deal for US supermarket firm Safeway.
In January it announced a deal to acquire five grocery store chains from US company Supervalu in exchange for $100m in cash and $3.2bn in debt reduction.
Cerberus is also said to be interested in acquiring the bad debt section of Banco Popolare, Italy's fourth biggest bank.
Headquartered in New York City's Third Avenue, in the heart of Manhattan, Cerebus has offices across the United States, Europe and Asia, and describes itself as "a truly global investor with a long-term investment horizon and focus on value creation".
On its website, the firm states its investment philosophy "is centered on integrity, patience and a unique business model that applies significant financial and operational resources across the firm's investment strategies".
"On the financial side, Cerberus focuses on opportunities that offer risk-adjusted returns, disciplined due diligence, strict compliance, a team approach with investment and operations partners and the use of efficient, creative and customized solutions," it adds.
Cerberus was co-founded by Steve Feinberg, currently its CEO, and William L Richter, a Harvard graduate who is senior managing director.
Its unusual name comes from the mythological three-headed dog that guarded the gates of Hades. Feinberg reportedly told employees that while it seemed a good idea at the time, he later regretted the name.
It is chaired by John W Snow, who served as US Secretary of the Treasury during George W Bush's presidency.
Dan Quayle, the 44th Vice President of the United States, who served alongside George Bush senior between 1989 and 1993, is chairman of the company's global investments division.
It is this collection of multi-billionaires and high-powered business brains driving the company now owning Nama's Northern Ireland portfolio.
Their acquisition is thought to total almost 1,000 properties and includes some owned by Northern Irish debtors but located outside the region.
Nama has never disclosed its full list of assets, but they are known to include Lanyon Plaza and the Soloist buildings in Belfast, developed by William Ewart properties.
A smaller list of around 160 Nama properties placed into receivership is published on its website. The majority are located in counties Antrim and Down, although others are dotted right across Northern Ireland.
It includes greenfield sites in rural areas bought before the credit crunch for millions of pounds as development land, but now only fetch the going price of farmland.
What the powerbrokers behind Cerberus make of their new acquisition remains uncertain, as does their long-term strategy.
In a statement John W Snow said Cerberus Capital Management was "excited and gratified" to reach agreement on the Nama deal, which he described as mutually beneficial.
"This investment, and the underlying assets in Ireland and other European markets, will be an important foundation for our overall European strategy," he said.
"Cerberus is a patient, long-term investor and has a well-established track record of making significant improvements to the assets that it manages.
"We believe Cerberus has the ideal base of expertise and experience to manage the Eagle portfolio and will be a strong partner for Nama, for Northern Ireland and for all the stakeholders associated with this transaction."
The main interest will focus on how much capital gain they make
By John Simpson
For property developments in Northern Ireland the impact of Nama in the property market has been generally passive and benign.
Without the creation of Nama, the crisis affecting Irish-registered banks might have translated into large risks of bank failure and threats to normal banking.
However, property owners and developers have taken serious knocks.
Nama has been a unique answer to a property market crisis of unpredicted and unprecedented proportions.
Whilst this unique answer has propped up Irish banks, arguably, for property developers it has done very little to avoid the unwelcome arrival of administrators, receivers or liquidators.
Many apparently successful property developments have been reassessed and owners have seen 'paper' gains wiped out and losses on assets charged to their annual accounts.
As the economies, north and south, begin to recover Nama has an important role to play in allowing the property market to function normally, or as near to normal as it can be with the large overhang of property assets it controls.
The sale of this portfolio to an American private investment company will help to unfreeze the local property market.
The transfer of the very large property portfolio from Nama to an organisation with an appreciation of how investment values can be enhanced is a welcome sign of returning confidence.
The significant area of interest in the months ahead will be the degree to which the new owners earn a significant capital gain on the property values.
Nama will try to sell its assets to offset the original costs.
The uncertain feature in 2014 is whether Nama will earn a premium on its original transactions and whether this will also allow new investors to trade profitably.