Sunday January 22 2012
Carroll assets eyed as brothers build up war chest
THE Comer brothers, the Galway developers who made a fortune in Britain, are selling part of their German property portfolio worth hundreds of millions in an audacious plan to capture a big chunk of the Irish apartment market.
Monaco-based Luke Comer confirmed that the Comer Group, which he co-owns with his younger brother Brian, were looking at buying up portfolios of "several hundred" apartments in Dublin from Nama.
"We are looking at Ireland now because we've been out a long time -- 27 years -- and we'd be very interested if the price was right."
Mr Comer declined to comment on individual deals but he has, according to market sources, looked at acquiring part of apartment kingpin Liam Carroll's portfolio of several thousand apartments in the Dublin area.
"What we're looking at would be in the hundreds, I'd say. It all depends on the type that is available," Mr Comer said.
The Comer Group, he said, had cashed out most of its British investments in 2006 and reinvested the proceeds in Germany. It currently owns 28 retail centres in Germany, four hotels and a massive office block in Berlin called Die Pyramide.
"How much we invest in Ireland all depends on how much we offload in Germany," Mr Comer said, "The sales process is going pretty well."
"The German property market is high at the most so that's a reason to sell," he said.
"There is still a lot of downside in Ireland and maybe we wouldn't be interested if we weren't from here originally," he added, "but it will all depend on how much success we have in Germany before we can really assess Ireland."
Mr Comer confirmed he had met with Nama, which he described as "doing its best in very difficult circumstances".
Property market insiders linked the Comer brothers with being interested in several thousand apartments if Nama is prepared to sell them at a bulk discount.
Meanwhile it has emerged that banks are seeking control of a boom-time joint venture between busted developer Liam Carroll and semi-state Dublin Airport Authority (DAA), which has imploded over the repayment of a €34m loan from National Irish Bank.
The move will be extremely embarrassing for the DAA which borrowed millions with Mr Carroll to develop the Horizon business park near the airport. But when prices crashed and Mr Carroll's empire collapsed in 2009, the scheme got into difficulty.
Loans fell due last July and weren't paid off with an extension set to expire in nine days' time. Property sources have told the Sunday Independent that frantic talks between the semi-State, lenders and Mr Carroll's former business led to a deal framework being agreed last week.
It is understood that the DAA will exit the deal and transfer its shareholding to Mr Carroll's former company, Dunloe. The move will come as a major reputational blow for the semi-state, echoing the disastrous property dealings that sank fellow quango, Dublin Docklands Development Authority.
"The company is a joint venture between DAA and Dunloe. Its borrowings are non-recourse to DAA. DAA understands that Turckton is currently in talks in relation to refinancing its borrowings, and these talks are expected to be concluded shortly. Turckton has been a profitable investment for DAA, and DAA expects this to continue to be the case," said the DAA.
Monday, January 23, 2012
Monday January 23 2012
A REVIEW on the impact of so-called 'negative-equity mortgages' has been postponed until later this year because so few cases have come up, according to Finance Minister Michael Noonan.
A handful of banks began quietly allowing homeowners to shift their negative equity to a new property in the middle of last year, as first reported by the Irish Independent in September.
The progress of such lending is being carefully monitored by the Central Bank, which was due to assess the pros and cons of the loans by the end of 2011.
In response to a Dail question from Labour's Joanna Tuffy, Mr Noonan said only a "small number" of lenders had told the Central Bank they would consider offering such loans.
"The low level of activity made it difficult to conduct a meaningful review at the end of 2011," he added. "Therefore the proposed review will not take place until later this year."
October's Keane Report into the mortgage crisis alluded to the potential of negative-equity mortgages to help buyers trade down to cheaper properties.
This would lessen the monthly burden of their mortgages, though the 'loan to value' of the new loan would be worse.
The report also cautioned that banks "may want to use this as an opportunity to move people off tracker and reduced-rate mortgages".
"This would not be appropriate as in most cases it will defeat the objective of someone trading down to a more affordable mortgage," the report added.
Mr Noonan also used his response to once again rule out "a general scheme to assist mortgage holders in negative equity".
- Laura Noonan
PENSIONERS who come into property windfalls but fail to notify authorities are being targeted as part of a new benefits crackdown.
The probe, which was made possible as a result of increased sharing of data between the Department of Social Protection and the Revenue Commissioners, is part of a wider operation to identify benefits cheats.
The development comes in the wake of the furore over moves by the Revenue Commissioners to pursue 150,000 pensioners who may have underpaid tax.
The Irish Independent has learned that the department has carried out a new matching exercise using shared data.
Social protection officials are accessing the names of people on non-contributory pensions who paid capital acquisitions tax to the Revenue Commissioners on property they received from a family member.
People in receipt of welfare payments are required to report such property windfalls. This allows officials to reassess their payments in the light of their improved financial means.
Around one million tax records dating back to 2007 were examined as part of the probe, bringing to light 40,000 people who receive some form of social welfare payment.
Department officials began working their way through these cases in recent weeks and are at an early stage in the investigation.
So far, €386,634 has been saved by axing or reducing the social welfare benefits of people who failed to report their changed circumstances.
This is made up of €134,572 which was recovered directly from overpayments to the pensioners who failed to notify officials of the property income.
Another €252,062 was generated in 'control savings', which estimate the value of what would have been spent had these incidents not been uncovered.
A spokeswoman for the Department of Social Protection said: "In a small number of cases, the department has been notified of the property transfers which would have affected their payment rate.
"In those cases, their means were reassessed and claims reduced or terminated as appropriate."
The department is also using Revenue data to identify people receiving a one-parent family payment but who are actually living with a partner.
This had been made possible by obtaining data from Revenue of people getting mortgage interest relief.
This information is then compared with records of people receiving the one-parent family payment.
If two recipients are linked to the same mortgage, inspectors are able to investigate whether they are living apart, as they claim to be.
So far, concerns have been raised in about 850 cases and 90 of these are under review.
A spokesman said the "renewed focus" was due to improved computer systems.
Prosecutions will be considered in cases where a person has been working and claiming social welfare for 12 weeks or more, and the overpayment is higher than €2,000.
- Eilish O'Regan
Thomas Molloy: There's a notable change in behaviour on property - Independent.ie. Good study of buyer behaviour! Worth a read.
Saturday January 21 2012
USER statistics for property websites are one way of measuring our obsession with bricks and mortar.
Around 450,000 people visit www.myhome.ie alone each month to gawk at its pages.
Rival websites claim even bigger audiences at a time when only 2,000 houses a month are actually being sold.
Those surfing habits speak volumes about the pent-up demand that exists in the property market these days following a gut-wrenching property crash that forced hundreds of thousands to put their dreams on hold.
While there are many rational reasons to hold off buying a new home, behavioural economists have found compelling evidence of much deeper forces at work in our subconscious that are far from rational. These forces often make us fearful of trading up or moving sideways.
A property crash is, after all, one of the best times for families to ditch their small homes and move into something bigger.
The 50pc declines we have seen in the past few years mean that somebody living in a €250,000 house who had their eye on a €500,000 house back in 2007 now requires just €125,000 to get that house today, compared to €250,000 back in 2007.
The snag for many is that while they can easily accept the new value of their dream house down the road, they just can't bring themselves to admit that their own house is also worth half what they paid for it despite all the work they put into it.
The reason for this is that most humans suffer from what economists call "loss aversion".
The term comes from behavioural economics, which is a relatively new field within economics that attempts to explain why people act the way they do when it makes little sense. Risking your life to save a stranger, for example, cannot be explained by most economic models that assume we all pursue our own self-interest.
A series of relatively simple experiments carried out in the 1970s and 1980s proves quite convincingly that we have an irrational hatred of losing money. The economists found that most people will refuse if somebody offers to flip a coin and give you €10 if it lands on heads and take €10 from you if it lands on tails.
They will also refuse a deal if the offer rises to €15 for heads and €10 for tails. In fact, the research shows that an average person demands odds of two-to-one before they take the risk.
This led the researchers who first identified this trait in the mid-1970s to conclude that the pain of a loss is about twice as potent as the pleasure generated by a gain.
Christopher Mayer, another behavioural economist, used this as the basis for his research into why the property market operates so differently in practice to economic theory.
Mr Mayer summed up his conclusions by saying: "Economists tend to think people are crazy because they won't sell their houses for less than they paid for them -- and people think economists are crazy for thinking things like that."
His conclusions followed a study of a three-year slide in the Boston property market in the early 1990s, which pushed down prices by almost 40pc. The study showed that people who bought at the peak of that property boom demanded 35pc more for apartments than people who had bought identical apartments after the collapse because those who bought at the peak simply could not bear to take a loss.
Professionals who trade all day have learnt to overcome loss aversion. Good traders shrug and say to themselves that a tonne of coffee, a house or a bushel of grain is worth whatever the market will pay. The trader wants to know how much a pork belly costs today and what it can be sold for in a week's time. The past is over.
Writing about the Boston market, Prof Mayer concluded that "people who had bought at the peak and were facing a loss generally listed their properties for significantly more than those who had bought at a time when prices were lower. Properties listed above the market price just sat there... much of the market went into a deep freeze as many people held out for market prices that no one would reasonably pay".
He could have been describing post-Tiger Ireland.
Many people "trapped" in houses today will have to develop a similar attitude if the market here is ever to recover. How this can be done is another matter, although you could do worse than listen to the advice the professor gave his own family.
"If you want to sell your house then you list it at the market price and you sell it," he said.
"If you don't really want to sell then don't put it on the market. But don't say you want to sell and then set the price so high that you spend the year cleaning up every morning, having people walk through your living room and look in your medicine cabinets and reject you. That's just painful and expensive."
Assuming you do want to sell your home, what other advice do economists have to offer? Chris Janiszewski and Dan Uy, who looked at five years of home sales in Alachuan County in Florida, have concluded that quoting a precise price gets you a higher price.
The researchers found that sellers who listed their homes with $100 endings got closer offers than those who listed homes with $1,000 endings, who got closer offers than those with $10,000 endings.
Another tactic (from Australia) is even stranger; list a house with two prices. Down Under, sellers often give a minimum and a maximum asking price. Researchers suggest that two prices confuse those making a bid and leaves them wondering where they should make a bid along the spectrum.
The belief that this works is based on a 1995 experiment by Max Bazerman, Sally Blount White and George Loewenstein that has volunteers playing a simple bargaining simulation which shows people were more likely to accept a given price when it was presented with a second, less advantageous offer.
In other words, they rejected an offer of $3, when it was the only offer on the table, but accepted $3, when the choices were $2, $3 or no deal.
Behavioural economics has limitations (and is still unable to explain why we fall in love) but there are many lessons for the hundreds of thousands of people who log on to property website every month to check out houses.
ANALYSIS: THE COMPLEX issue of how to deal with unsustainable mortgages in out-of-court debt settlements may be concluded in three months’ time – but the operation of the new system could prove as difficult as its construction.
As part of the latest quarterly review of the bailout programme, the Government last week said it was deferring publication of the personal insolvency legislation until the end of April.
The delay of several weeks was due to the “very difficult” technical nature of the legislation, Minister for Finance Michael Noonan said last week.
The growing number of Irish individuals travelling to declare bankruptcy in the UK – where bankrupts can walk free of debt after a year – makes the need to reform Irish personal insolvency all the more urgent.
Last year the Government reduced the term for the discharge of a bankrupt from 12 years to five years in certain circumstances. This may again be reduced to three under the new legislation.
Under the proposed changes, the Government aims to introduce non-judicial debt settlements, allowing people an alternative to the costly and protracted court system of resolving debts.
But the changes are fraught with difficulties. If the reforms make debt settlement too lenient and include mortgage debt write-offs, it could encourage borrowers who can afford their mortgages to plead an inability to pay in an effort to secure the deals that will be on offer to the “can’t pay” category.
That could see the capital hit to the banks increase the bank bailouts beyond the €62 billion cost of recapitalisations so far.
If bankruptcy remains too onerous and the new out-of-court settlement system does not go far enough, the overhang of personal debt will remain a major drag on economic recovery.
Government officials are said to want to limit write-offs in out-of-court debt settlements to unsecured debt such as car loans, credit card debt and personal overdrafts, and to ensure mortgage debt is only restructured by pushing out the term of the loans.
Such a plan would involve reduced mortgage payments or a mortgage holiday over a period to allow some write-off of unsecured debt during that period. But mortgage debt would not be written off – it would merely be repaid at a later date.
The Irish Banking Federation said last week that lenders wanted the personal insolvency regime limited to unsecured debt.
The representative group said it would lobby the Government to ensure that, if secured debt is included, it will be “done in a way which will minimise the capital impact on balance sheets”.
While the Government hammers out the legislative changes, the banks are not sitting back. AIB recently agreed a deal with Certus – the firm that is managing the run-down of the former Bank of Scotland (Ireland) loan book for the part-nationalised UK bank Lloyds – to help the State-controlled Irish bank devise ways to deal with distressed borrowers.
Certus is managing about €8.5 billion of former Halifax mortgages written in the Irish market.
The company has devised alternative approaches to the limited twin-track options available to lenders – forbearance or foreclosure. The latter option is rarely used relative to the number of mortgages in default, as the cost to the banks is prohibitive given how far property prices have fallen.
About 13 per cent of residential mortgages are in arrears of 90 days or more, or have been restructured to ease the burden on borrowers. This figure is rising.
The number of possession orders on properties granted by the High Court to lenders actually declined in 2011, according to figures obtained by The Irish Times (This does not include repossessions in the Circuit Court).
From the perspective of the banks, it is more commercially viable to keep a distressed borrower in their home and repaying at least some debt than repossessing a house that cannot be sold and costs money to maintain.
“Banks are rarely the best people to sell houses – they typically incur a 30 per cent discount relative to the price index,” said Certus chief executive Joe Higgins, who was previously in charge of Bank of Scotland (Ireland).
“In many cases customers are in the right house, but have the wrong mortgage. They can afford the house they’re in at today’s rental values, but they can’t afford the mortgage they took out to buy it in the boom. In these circumstances, repossession is the wrong answer for both the customer and the bank.”
Higgins and his team at Certus have crunched the forecast numbers underlying the Central Bank’s stress tests figures last year and have charted different routes to avoid the road to repossession.
Seizing control of property means selling houses into the bottom of the housing market. Based on the unemployment estimates for the coming years in the tests, Certus estimates that of the people out of work today more than 50 per cent are likely to be back in work within five years.
The company believes that, for customers in distress, banks should be setting mortgages at an affordable level based on the likely future earnings of a borrower.
Where the bank establishes that the customer is likely to have more than enough income to be able to repay their mortgage from future earnings over time, the borrower should be shown forbearance.
This would involve reduced monthly repayments by extending the term of the mortgage.
If the mortgage that the borrower can afford – again based on likely future earnings – is higher than the potential disposal value of the property, but lower than the existing mortgage, the bank should leave the customer in the property and forgive part of the mortgage down to the level they can afford.
Certus believes that, in these circumstances, the bank is better off accepting reduced mortgage repayments than repossessing.
If the mortgage the borrower can afford is lower than the potential disposal value of the property, then the bank must foreclose – either by repossessing the property or encouraging the borrower to move to a smaller home using a mortgage they can afford.
This three-track approach of forbear, forgive or foreclose is based on the current rental value of the properties.
If a borrower can afford to lease their home based on the property’s rental value and the person’s likely future earnings, they are in the right house but have the wrong mortgage, says Certus. The firm believes adopting this approach could save the banks capital.
The Central Bank’s stress tests, which were verified by consultants BlackRock, estimated that Bank of Ireland, AIB, Permanent TSB and EBS faced expected losses of €5.8 billion over the lifetime of their residential mortgages.
Applying its more advanced forbearance solutions, Certus believes that it can reduce this to €2.9 billion, as the stress tests were based only on foreclosures.
The firm’s approach will only work if the borrowers agree to co-operate through the forbearance period and if the banks can independently verify income through the receipt of tax returns.
The proposed new credit register, which will give lenders a full up-to-date picture of a borrower’s total debts across all credit institutions, will help to assess what mortgage a borrower can afford.
The new personal insolvency regime will also need to prevent “gaming” by borrowers, or moral hazard – where risky behaviour is rewarded.
Such disclosure is required as borrowers could conceal income in an attempt to force the banks to agree to forgive some of the debt.
This will give lenders a stick to force borrowers into out-of-court settlements that will limit their access to credit should agreed debt forbearance and forgiveness arrangements start to fall apart.
Certus says the proposed measures would only be open to banks to apply to customers, and not for borrowers themselves to choose. For this reason, the banks could not advertise the proposals or discuss them openly – again to prevent “gaming” by customers. They must be applied case-by-case.
This is the track recommended by the Government’s expert group led by accountant Declan Keane, which sought to find a solution to growing mortgage arrears.
It found that people have been entering forbearance arrangements with lenders or “sheltering” behind the moratorium on legal action or the slow legal process when, in reality, they will never be able to afford their mortgages.
Introducing alternatives beyond forbearance, or the less-frequently used foreclosure, will allow banks break the logjam of problem mortgages for which no long-term or viable solution has been agreed.
The move by Certus to help manage loans at a second bank means the company’s proposed options could eventually be made available to distressed borrowers within a book of €26 billion mortgages at AIB and a further €15 billion at its subsidiary, EBS.
“Banks will need to think more creatively in Ireland’s unprecedented circumstances,” said Joe Higgins of Certus.
“Long-term forbearance tools and debt forgiveness will be more important remedies than the traditional repossession route.”
THE THREE Fs: BANK SCENARIOS FOR TROUBLED MORTGAGES
Where the borrower can ultimately afford the mortgage from their likely future earnings
PLAN: bear with the borrower and reduce the payments for a short time by extending the term of the loan
Where the borrower can afford only some of the mortgage based on their likely future earnings and the mortgage is higher than the potential disposal value of the property
PLAN: reduce the mortgage by forgiving part of it and leave the borrower in possession of the property
Where the borrower will never be able to afford the mortgage and the mortgage is lower than the disposal value of the property
PLAN: borrower must agree to sell the property and move to a smaller house – or the lender will repossess the property
By Paul O’Brien and Conor Ryan
Monday, January 23, 2012
Nama has said it is not contributing to the plush lifestyle of the stricken developer Dermot Quinlan.
The tax inspector turned development tycoon has seen his empire subjected to receivership proceedings by Nama and the agency has begun enforcement proceedings against him.
However, he has reportedly relocated to a €4,000-a-week home in a rich London neighbourhood and retained the trappings of wealth.
A Nama spokesman said the money Mr Quinlan was living on was not provided or sanctioned by the agency and it was not working with him.
"Clearly we have begun appointing receivers, we have begun enforcement proceedings and we are not supporting his lifestyle in any way," the spokesman said.
Mr Quinlan is not one of approximately 40 developers allowed draw down a salary from their business as they work with Nama to maximise the potential return.
In this respect, Finance Minister Michael Noonan said he will not direct Nama to lower the €200,000 salaries sanctioned for two of those developers as it would be "inappropriate".
Nama confirmed in recent months that it authorised salaries of €200,000 — the same as that of the taoiseach — for two developers whose loans are with the agency.
The average payment for the 40 developers is €75,000 a year.
Despite demands for the Government to intervene to lower the salaries, Mr Noonan has repeatedly made clear his reluctance to do so. Asked again about the issue by fellow Fine Gael TD Terence Flanagan, Mr Noonan said the salaries were a commercial decision taken by Nama and that it would be inappropriate for him to intervene.
"Both the chairman of Nama and I have separately explained on several occasions over the past few months that Nama decides whether or not to work with any particular debtor on the basis of what will generate the maximum return for the taxpayer," Mr Noonan said.
"Nama only works with developers where it considers that this will provide the best return to the taxpayer. Nama will continue to make its decisions on a case-by-case basis in line with its commercial mandate."
Mr Noonan said he understood from Nama that as part of the agency’s business plan agreements with debtors, it normally sought a reduction of 50% to 75% in overhead costs and that any salaries paid to debtors were from these reduced budgets.
Mr Noonan said: "Nama has been established as a fully commercial agency to operate under the direction of a board of directors. As long as Nama operates in accordance with statute, it would be inappropriate for me or my officials to attempt to interfere with the commercial decisions taken by the board.
"On the basis of the information received from Nama, I am satisfied that the agency is acting appropriately in this matter and seeking to protect taxpayers’ interests."
The developers in question have "multi-billion-euro portfolios", according to Nama, and the agency believes it is cheaper to the taxpayer to allow these individuals continue to manage the portfolios rather than hire outside asset managers.
INDEPENDENT TD Mick Wallace is facing the sell-off of his property empire after ACC Bank obtained judgment mortgages on 23 of his properties.
The bank successfully registered judgment mortgages at the Registry of Deeds and the Property Registration Authority against Mr Wallace and his construction company, MJ Wallace, just before Christmas.
The move gives effect to the summary judgment orders for €19 million which the bank secured against Mr Wallace and his company last October.
The properties affected include his home address in Clontarf, Dublin, as well as houses, apartments and commercial premises across the city.
A judgment mortgage effectively prohibits any dealings on a property unless the debt involved is discharged.
ACC Bank could force the sale of Mr Wallace’s properties, but would first have to apply to the courts to order this to happen.
The bank could also seek to have the TD declared a bankrupt for non-payment of his debts – a move that would force him to resign his seat.
Mr Wallace, who has total debts exceeding €40 million, told The Irish Times at the weekend that he swore a statement for the bank last week setting out all he and his company owned.
He said he had no idea what the bank now intended to do or whether it would take bankruptcy proceedings.
The bank appointed a receiver in May 2011 but Mr Wallace said this applied to the assets of his company and not the company itself. He said that although the company was still trading and employing a few staff, it was effectively “finished”.
Since the judgment against the company, it has struggled to find good work. He said he would not be able to repay his debts because the value of his assets had greatly diminished.
The other banks to which he owed money – which include AIB, Bank of Scotland (Ireland) and Ulster Bank – had so far not followed the example of ACC by pursuing him in the courts, and he still had a good working relationship with them.
Another of his companies, Wallace Calcio, was still operating normally and employing “more than 50 people” in wine bars and other businesses, he stressed.
Mr Wallace criticised some of the press coverage of his business difficulties, saying the impression had been given last year that he had not or would not pay staff pension contributions to the Construction Workers’ Pension Fund.
He said €136,000 was owed in the case, but the outstanding amount was €24,000 at the time of the summons and all outstanding monies had been paid by the time of the court case.
“I was fined [€7,000} for late payment. At no stage did I not intend to pay this money.”
Monday, January 16, 2012
DAN O'BRIEN, Economics Editor
HOUSEHOLDS HAVE continued to save a large proportion of their incomes in the third quarter of 2011, according to new figures published by the Central Statistics Office.
Gross saving by households stood at €3.9 billion during the three-month period, or 17.3 per cent of their aggregate incomes.
This is broadly in line with amounts saved since the recession began but marks a continuation of the slight downward trend in evidence for almost three years.
Before the recession began, households saved much less and instead consumed a larger proportion of their incomes. Much of the increase in household savings is being used to pay down debt.
As the chart below shows, a gap has opened up between the disposable income of households and the amount they spend. Although both have declined since the bursting of the property bubble, spending has fallen by considerably more than incomes, as households save more.
In the third quarter of 2011, the aggregate gross disposable income of households was 16 per cent lower than the all-time peak, reached in early 2008.
Total quarterly spending by all households fell by more than 24 per cent between the third quarter of 2011 and the record high, reached at the end of 2007.
The figures are not adjusted for inflation or seasonality. As incomes are lower in the final quarter of each year (as tax payments fall due) and spending is higher (owing to Christmas), the unadjusted figures are volatile.
By Tommy Barker, Property Editor
Saturday, January 14, 2012
A GROUP of individuals have banded together to get the deal of a lifetime, snapping up 14 upscale holiday homes in receivership for €85,000 each — less than one-third of the original price.
And the success of having 14 sales simultaneously go through on a "back-to-back" basis can be a precedent for some other distressed house schemes, it has been claimed.
The purpose-built holiday homes at Mountain View, Glengarriff, in West Cork, along with a leisure centre to be run by a co-op, have been bought collectively by private cash buyers, who range in age from their 30s to their 70s.
They each paid around €85,000 for the three-bed, four-star, rental-quality houses, which had idled in receivership for two years. Mountain View was built by a Limerick partnership, who had hoped to sell them with the aid of tax breaks for around €300,000 each.
Now they have just been insured by their new owners for a rebuild cost of about €150,000 each.
The disparate group came together in August 2011 when local, part-time resident and legally-savvy businessman Finn McSweeney decided: "I didn’t want a ghost estate on my doorstep."
He met with estate agent John O’Neill of REA Celtic Properties, and between them they targeted dozens of people who had links to Glengarriff, including regular holiday-makers, golfers, families in mobile home parks, and public and civil servants retiring with cash lump sums.
All 14 buyers moved in tandem on contracts, as well as putting about €200,000 into a fund to get all the houses (averaging 1,200 sq ft) to the same finished standard. There was a list of at least six other potential buyers if anyone pulled out.
"There was a huge element of trust in auctioneer John O’Neill, and the group’s leader, Finn McSweeney — that was the key," said receiver Richard Maguire of O’Donovan Caulfield Lavin, acting for Anglo Irish Bank.
"Every one of the 14 houses had lights blazing on New Year’s Eve. Instead of being a ghost or famine village, there’s been a real gain for the community."
SEAN Dunne has confirmed that his dream of bringing a piece of Knightsbridge to Ballsbridge has finally come to an end.
Speaking exclusively to the Sunday Independent at the D4 Berkeley Hotel yesterday, the Carlow-born developer said he was at "an advanced stage in agreeing an exit strategy that is consensual with the syndicate of banks" that backed the multi-million euro scheme. He said he was looking forward to moving on with his life in America.
Asked how relations with the banks who had lent him a massive €379m for the former Jurys hotels were now that he was leaving them behind, a relaxed Mr Dunne said: "In the strange times we're now living in, it's very important to maintain good relations with your banks. The syndicate have been very supportive of me."
Not even the mention of Nama and its decision to seek a multi-million euro judgement against him in the High Court appeared to ruffle the man the media once dubbed the Baron of Ballsbridge.
Mr Dunne even went so far as to point out that Nama was looking for a judgement of €184m against him, as opposed to the sum of €100m quoted in the media. While he declined to comment further on the matter, the Sunday Independent understands that he has written to Nama to inform it of his intention to consent to the judgement subject to the figures being verified by his own accountants.
When asked to confirm the extent of the personal guarantees he had given to the banks for his loans on the former Jurys Ballsbridge site, Mr Dunne said these amounted to a €50m guarantee to Ulster Bank, €25m to ACC and €25m to Rabobank. He stressed, however, that he had lost all of the €125m that he had invested personally in the proposed redevelopment of the site.
Mr Dunne went on to note that he had given personal guarantees totalling €409m during the heady years of the boom, once the €184m Nama intended to pursue was added to the overall guarantees of €125m and €100m he had given to the Ulster Bank (and another bank which he did not identify).
Asked for his views on the personal guarantees the banks had sought from their clients during the Celtic Tiger, Mr Dunne said: "They [personal guarantees] should be banned from all future lending. On a personal level, the next banker who asks me for a personal guarantee had better be sitting safely beyond arm's reach."
The Sunday Independent understands that former Jurys Doyle group chief executive Pat McCann, who now heads the Maldron Group, is being lined up to oversee the operations of the Ballsbridge hotels on behalf of the syndicate.
Mr Dunne is understood to be in negotiations with a number of hotels in the Ballsbridge area with a view to offering them marketing and room sales services, through a D4 Hotels website.
A SERIOUS row that erupted at a meeting of the board of the Construction Industry Federation (CIF) last week was related to the administration of the employers' body's pension scheme, the Sunday Independent has learned.
After the meeting, the CIF's director general, Tom Parlon, wrote to board member Jerry Beades to accuse him of making "wild allegations without foundation".
Mr Parlon added that this was now "unfortunately" a "recurring theme" of Mr Beades' contributions to meeting, something which, he said, was "totally unwarranted and unacceptable".
However, Mr Beades, in a reply to Mr Parlon, called for the resignation of certain named individuals whom he accused of being "deliberately misleading" in relation to facts and of "attempting to discredit me personally" by implying that he had been supplied with financial information.
Mr Beades first raised questions in relation to the administration of the CIF's pension scheme last May.
He has since repeatedly sought detailed information specifically in relation to around €30m which, he claims, is controlled by senior CIF and trade union officials "unknown to the membership of the CIF and employees" who make contributions.
He is accusing the CIF of a "blatant disregard" for "safe accounting" and is calling on the Pensions Ombudsman to conduct an investigation.
However, Mr Parlon has told Mr Beades that his contribution to an executive meeting on Tuesday last "showed a total lack of respect" for the chair of the meeting, the integrity of the officers of the CIF and the private business affairs of individual members.
He said Mr Bades was "fully entitled" to raise issues and "make inquiries" but that this must be done in an "appropriate manner".
Mr Parlon said members of the executive body should expect to attend and discuss key issues "without being shouted down in repeated outbursts" and demanded that meetings be held in a "courteous and businesslike" manner.
He asked that Mr Beades undertake in writing that he conduct himself in a "professional and civil manner" at further meetings and that he "apologise in writing" to fellow members for his behaviour at the meeting last week.
The row flared up after a presentation of a review of the Construction Industry Monitoring Agency (CIMA), the role of which is, among other things, to ensure pension scheme compliance.
Mr Beades maintains that there is a lot of disquiet in the industry in relation to the administration of the pension scheme. He claims that large sums have been collected which are not used for pension-contribution purposes.
The meeting last week heard that a review of the functions and operations of CIMA had not been conducted for approximately a decade.
"Regular reviews of the agency must be conducted to ensure its continued effectiveness and viability," CIMA's own review concluded.
It also stated: "Allegations have recently been made of CIMA monitors pursuing other industrial-relations type issues in addition to compliance with the Pension and Sick Pay Scheme.
"We recommend that the monitor-nomination form and the monitor-declaration form be strictly adhered to. The activities of CIMA monitors should be keenly supervised and any deviation into other industrial relations issues by CIMA monitors should be dealt with by the code of practice drawn up for such issues.
"At present contributions to CIMA are on a voluntary basis. We recommend that the executive body give consideration to making these mandatory."
- JODY CORCORAN
A FORMER estate agent who stole €1.6 million after he used solicitor Gerald Kean’s name to encourage 25 investors to participate in a Ponzi scheme has been jailed for six years.
Eamonn Kelly, who had owned two RE/MAX auctioneers franchises, told investors they could make €15,000 profit on a €50,000 investment within six months if they bought sites he claimed he had identified in the UK.
He said the sites were incredibly lucrative and that planning permission for a hotel was imminent. He subsequently used funds from later investors to repay profits to the early investors to encourage them to reinvest.
Kelly (48), Decies Road, Ballyfermot, pleaded guilty at Dublin Circuit Criminal Court yesterday to sample charges of theft, one of producing a false instrument and one of forgery between October 2007 and February 2010. He has no previous convictions.
Det Garda Séamus Padden told Kerida Naidoo, prosecuting, that Kelly forged Mr Kean’s signature on a letter sent to potential investors to encourage them to invest in a bogus property operation in Manchester. The letter stated that the solicitor was representing Kelly and that the estate agent acted as an adviser to Mr Kean. Mr Kean knew nothing about the letter.
Kelly also provided potential investors with a bogus letter from the Ulster Bank in Crumlin, stating that he had €4.6 million on deposit in an account there.
Det Garda Padden said the scheme involved 25 groups from Dublin, Wexford and Donegal, whose investments ranged from €10,000 to €100,000. Kelly told the investors that the sites could be purchased at cut-price and hotels could then be built on them which would in turn produce a significant short-term profit.
Det Garda Padden told Mr Naidoo that the investors represented a “cross-section of society”, some of whom used their recent redundancy to purchase the site, others used their savings, while others were “business people who would have the means to survive” despite their financial loss.
Kelly had paid commission to RE/MAX agents in both Donegal and Wexford to source potential investors but gardaí accept that these estate agents genuinely believed the operation was legitimate. He found Dublin investors through his contacts with his local GAA club in Crumlin, through friends and acquaintances.
Det Garda Padden said the bulk of the funds, just over €1 million, came from the Donegal investors.
He said Kelly had paid back €410,000 to a small number of investors before he was caught and €480,000, he then held in three different bank accounts, was frozen by order of the High Court upon his arrest.
Det Garda Padden told Mr Naidoo that the scheme came to light after the bogus letter from Ulster Bank came to the attention of the bank. They contacted the Garda, Kelly’s accounts were frozen and he then presented himself voluntarily at the Garda station.
He made full admissions and said he had started the scheme after he ran into financial difficulty following the property crash. He said he was under pressure to keep up to date with his €8,000 monthly mortgage repayments on properties in Kildare, Dublin and Portugal.
Judge Martin Nolan described the offence as a “classic Ponzi scheme”. He said Kelly had been a decent man until he engaged in this activity and found himself “totally out of his depth”. Kelly’s crime “involved deception, severe losses to some and breaches of trust”. He imposed consecutive sentences totalling six years.
The case was adjourned to allow the State time to consider what should be done with the money frozen in Kelly’s account.
A bank is entitled to summary judgment orders against a barrister and his wife for €2.1 million over loans on six rental properties on which they defaulted, a High Court judge has ruled. Permanent TSB brought the claim against Ronald Hudson and his wife Miriam arising out of their purchase in 2003 of three houses in Clondalkin, Dublin, an apartment in Galway and a further two houses in 2006.
They were given five loans totalling some €1.97 million. After falling into arrears the bank demanded full repayment. They now owe €2.1 million.
The Hudsons said they had a defence including that on the basis of representations made to them by mortgage broker Susan Croke, of the Irish Mortgage Corporation, they would not be personally liable for the loans and could simply hand back the properties to the bank if things did not work out. Mr Justice Seán Ryan yesterday said he found the story told by Mr Hudson and his accountant Anthony Fitzpatrick was not credible. “It is far-fetched and inconsistent,” he said
RURAL pubs and off-licences across the country are in serious decline, new figures reveal.
One in ten pubs ceased trading since 2007 — with drink driving laws being blamed for the closures.
Since the start of the recession, more than 800 pubs have closed with rural counties being worst affected, figures released by the Revenue Commissioners show.
In 2007, 8,318 applications for renewed pub licences were granted, however, as of last year that figure dropped to 7,509.
Junior Minister for Tourism and Sport Michael Ring claims recent drink driving legislation is having a detrimental effect on the rural pub sector and a knock-on effect on tourism.
"There is no doubt that it is a rural problem and that is shown in the figures. Recent drink driving regulations probably haven’t helped the situation either. It is an inherent part of our culture and it is extremely sad to see the decline," Mr Ring said.
Cork is the worst effected county with over 146 pubs having closed, a rate of 12% in four years. However, this can be attributed to Cork’s large number of pubs, currently at 1,010 — 249 more than Dublin.
Louth, Laois, Leitrim and Donegal’s pub sector are also badly affected, while Waterford’s off-licence business has been slashed in half since 2007.
The capital is one of the least affected areas with a 4% drop in pub applications.
Padraig Cribben, president of the Vintners Federation of Ireland, said lifestyle changes, increased costs and low-cost alcohol in supermarkets were to blame for the decline.
"In the last 12 months, 7,000 jobs were lost in the on-trade sector alone and at least 500 pubs are at risk of closing over the next 12 months, with the subsequent loss of a further 4,000 jobs," Mr Cibben said.
"The Government needs to sit up and take stock of what is happening here.
"We are a major asset to this economy and all we are looking for is a level playing field," Mr Cribben added.
Restaurants have also fared poorly as the number of licence renewals fell by 20%.
The pub remains the number one attraction for visitors coming to Ireland, according to the latest Lonely Planet guide published just last week.
LANDLORDS renting their property out to welfare recipients will take a hit of as much as €270 a month as the Government cuts rent supplements in a bid to save €22m from its annual €500m welfare rent bill, writes Fiach Kelly.
Rent supplement is paid to people living in private rented accommodation whose only income is a social welfare payment, such as the dole.
A review by the Social Protection Department found the State was helping to foot rental bills to landlords around the country way in excess of market value, mostly outside Dublin.
New limits based on local market rates come into effect from this month for all new claimants.
The Department of Social Protection will write to existing recipients of rent allowance informing them of the new limits for their area as their lease comes up for renewal.
If their landlord refuses to accept the lower rate, the renter will be told to find alternative, cheaper accommodation.
STATE ASSETS agency Nama’s determination not to sell properties below the value at which it acquired them is likely to result in few distressed asset sales over the short term, according to one investor.
Nama has made it clear that it will not embark on fire sales of properties that it controls in the Republic, nor is it prepared to sell assets for less than what it paid to acquire them in the first place.
Justin Bickle, managing director of the UK division of US investment fund Oaktree Capital, says that, as values fall in both the Republic and across the euro zone, maintaining this discipline will be important for Nama.
But, he says, the approach is likely to “result in less transactions for distressed assets purchasers in the short term”.
Oaktree Capital backed house builder McInerney Holdings examinership and was poised to invest up to €48 million in paying its creditors and providing it with working capital had it successfully emerged from the process. However, the courts refused to approve a rescue plan for the group. Writing in Kavanagh Fennell’s Corporate Restructuring and Insolvency Review for 2011 , which was published at the weekend, Mr Bickle points out that, from the perspective of anyone interested in buying or investing in distressed assets, Nama controls much of the market.
He points out that Nama’s influence is important, even when investors are looking at buying assets from banks outside the agency’s remit, as how it manages and sells its properties will have an impact on the overall market.
Monday, January 9, 2012
It’s the question no one can answer with cast-iron certainty but with serious mortgage relief on offer and falling prices, it might just be a good time to buy, writes CONOR POPE
WHILE THE three auctions of distressed properties held by Space Allsop in the Shelbourne Hotel last year featured dozens of lots and attracted huge crowds, protesters, international television crews and crowd-controlling gardaí, the Merlin property auction in the Burlington Hotel at the end of November was a considerably more low-key affair.
There were just 60 chairs in the ballroom and many of those remained vacant throughout the short auction. Just two of 10 properties reached their reserve price and sold under the hammer, a further two properties were sold after the auction and negotiations got underway for three others.
Unlike the Space Allsop affairs which were organised by banks anxious to get repossessed or surrendered properties off their hands, the Merlin sale saw owners putting their houses on the market and the anxiety on the faces of many of those would-be sellers was evident.
While the auctions were different, they were both a stark reminder of just how far the Irish property market has fallen.
In the Burlington, one house in Dublin’s East Wall that once might have been expected to sell for close to €400,000, had a reserve of €65,000 which it eventually reached after a painstaking process. A three-bedroom house in Clifden, Co Galway had a reserve of €69,000 but bidding peaked at €58,000. Its value just two years ago was put at €205,000. A two-bedroom apartment in Youghal, Co Cork attracted a bid of €65,000 before selling, post-auction, for €66,500. Its peak value was around €250,000.
Recent figures from the Central Statistics Office (CSO), MyHome.ie and Daft.ie all bear out the precipitous decline. According to the CSO, the cost of an average home in the Republic fell by almost 16 per cent in the year to the end of November. For its part, MyHome.ie reported an annual rate of decline of 13 per cent in 2011, while Daft said house prices had fallen by 18 per cent year-on-year.
Then there are the more than 100,000 homeowners who are struggling and often failing to pay their mortgages each month. In such a climate of fear and uncertainty asking whether 2012 might be the year to buy may sound ridiculous but it might be a good idea for many.
In an effort to kick-start the moribund property market, in last month’s Budget the Minister for Finance Michael Noonan dangled a carrot in front of would-be buyers who are considering making a move.
First-time buyers who buy this year will get mortgage interest relief of 25 per cent in 2012. The rate will stay the same in 2013 before falling to 22.5 per cent for 2014-2016. In 2017 it will drop further to 20 per cent, meaning for that year they would get a maximum relief of €2,000 annually for singles and €4,000 for buyers who are married or in a civil partnership.
People who buy their second or subsequent home next year will benefit from a 15 per cent rate of mortgage interest. People who wait until 2013 will get no relief.
If a person buys for €300,000 today and puts down a 10 per cent deposit they will have a mortgage of €270,000. Spread out over 30 years at 4.5 per cent that will cost around €1,289 a month. This year a couple would get €225 off that in mortgage interest relief which would take the net payment to €1,064 a month.
If they were to wait until 2013 and house prices were to fall by 10 per cent over the next 12 months then the same house would only be worth €270,000 next year.
With the same 10 per cent deposit, that would leave them with a mortgage of €243,000 in 2013 but no tax relief on the payments. So a 30-year mortgage at the same rate of 4.5 per cent would mean a monthly cost of €1,160, a fraction less than if they bought now despite the smaller mortgage. But they will also be paying their mortgage for one year after the first couple have paid theirs off and will have paid rent for an extra year.
Cathal Gahan from Dublin is collecting the keys of his first house later this month. He is 29 and has just bought a three-bed, mid-terrace house in Raheny for €200,000, more than €200,000 less than what it would have cost him at the height of the boom.
“I have been saving for the last few years and finally I got into a position where I could afford it. I am buying as a home for the long term,” he says. “My thinking was that I can afford it, it is where I want to live and I have got the financing in place so why wouldn’t I? Of course it might fall in value over the next two or three years but I don’t really mind.”
He used a broker to arrange his financing and says that because he had the 10 per cent deposit and a full-time job, the loan was not a problem. “A lot of my friends are talking about it and asking about the mechanics of the process. The reality is that none of us could have afforded to live here, where we grew up, five years ago.”
And what is the bottom line? His three-bedroom house, once interest relief is factored in, will cost less than €600 a month, a price which compares favourably to similar-sized houses in the area which are renting for €1,000.
According to Daft.ie economist Ronan Lyons, a key point is that recovery will not mean an increase in prices. In the property website’s “State of the Housing Nation” report published last week he said recovery “means an increase in activity” and not a big shift in prices – those days are gone, possibly for ever.
There can, however, be no recovery until banks start lending. Last year Irish banks issued about 13,000 mortgages compared with over 200,000 in 2006, a decline of almost 95 per cent. The financial institutions blame the dramatic decline on a lack of demand because those who would trade-up are mired in negative equity or are clinging to precious trackers and first-time buyers are either unemployed or worried about their jobs.
But experts say that while demand is certainly down, it is not down by 95 per cent. Lyons points out that while 50,000 25-34 year-olds have emigrated and another 50,000 are newly unemployed “there are still over half a million 25-34 year-olds – the household-forming age – at work. These are the people who would, in other circumstances, be kick-starting activity in Ireland’s property market.”
Bank of Ireland has committed to lending €1.5 billion this year. That increase in lending, if it actually happens, would amount to around 65 per cent of all lending last year and would be sufficient to see a significant increase in activity.
Mortgage broker and financial commentator Karl Deeter is surprisingly upbeat about the state of affairs.
“I haven’t been positive about property for half a decade but this year I am,” he says. “My feeling is that most of the heavy lifting is done and while I don’t think we have reached the bottom of the market, I would expect declines to be in the low double digits if that unless we buck all international trends and the correction is in excess of 70 per cent.”
He told Pricewatch last week that he was “happy enough to say that when we look back on today in a decade’s time people will say that this year was a good time to buy a house”. He stresses that good quality houses in established areas are attractive rather than apartments which will struggle to retain or increase their value.
Deeter also believes people should look towards long-term options rather than simply getting on the property ladder as they may have wanted to do a decade ago. “If someone came to me and said they wanted to get on the ladder and did not mind where they bought, I’d ask them to show me their time machine to see if they had come from 2006.”
Financial advisor and director of moneycoach.ie, Frank Conway says that if people come to him in connection with a mortgage the first question he asks is why are they buying.
“If someone is looking to make an investment or because they think the bottom of the market has been reached then I strongly caution against it. There is no way anyone can know when the bottom has been reached. But someone who is buying a home for the long term who has the troika of job security, financing and a property at an affordable price, then it is certainly not a bad time.”
Conway does not, however, believe the market is close to settling. The big problem, he says, is the banks are not lending.
“We need to see cash flow in the mortgage market and I do not see that happening. The conditions have created conditions which mean many people will not qualify for a mortgage.” Things like the occasional credit blip, recent employment after a period without a job or contract-only positions in line with public service recruitment bans are all working against people.”
PROPERTY WATCHERS and movers alike, who are waiting for a deluge of homes to hit the market this year, are likely to be disappointed.
According to a spokesman for the National Asset Management Agency (Nama), 2012 will not see the staging of a much-vaunted public auction of its stock.
“If you’re waiting for a Nama auction in the Shelbourne Hotel, you won’t see one,” he said. However, for those waiting on the sidelines for a bargain, 2012 will see increased activity from this quarter, as Nama encourages developers to offload properties at “realistic prices”.
“You can certainly expect to see more apartments linked to Nama loans at auction in the coming year,” he added.
This could take the form of a developer specific auction, at which 40 or so apartments built by that developer are sold, or they could be rolled into the various auctions that are already taking place. The agency has about 10,000 properties linked to Nama loans, most of which are apartments in urban areas such as Dublin and Cork.
By Nick Webb
Sunday January 08 2012
DURKAN Group, the hugely successful UK-focussed construction group founded by Bill Durkan, has slammed Nama after "unsatisfactory" dealings with the €80bn state bad bank.
In an unprecedented move, Durkan decided to pay off €43m in Nama bank loans rather than continue to deal with the lumbering state agency.
Durkan hammered Nama as being unreasonable and leaving the successful construction company in "an invidious and unfortunate position". The process of dealing with the state agency was lambasted as "cumbersome, costly and time-consuming".
Durkan Group, which was founded by Bill Durkan in 1963, has become one of the largest builders of affordable housing in the south-east of England, as well as developing a major contracting business serving the education and healthcare sector. Its Durkan Estates wing is involved in residential developments.
The company had "good loans" or performing loans with Anglo Irish Bank and Bank of Ireland, which were transferred to Nama in December 2010. However, failure to agree a refinancing deal with Nama after an arduous process left Durkan unable to work with the National Asset Management Agency and it was forced to move its business elsewhere.
"On December 23, 2010, Nama advised that it had acquired the Durkan Group loans (all good loans). The group was left in the invidious and unfortunate predicament of having to engage in a cumbersome, costly and time-consuming with an agency whose ultimate aim is the realisation of loans on behalf of the Irish Government," according to Durkan Group documents obtained by the Sunday Independent.
"Negotiations with Nama over facilities and the repayment of the loans proved to be unsatisfactory and would have been most uneconomic if accepted.
"By July 2011, it had become abundantly clear to the group that Nama was not in a position to facilitate the reasonable requirements as set out in our comprehensive business plan submitted to Nama on March 31, 2010. On August 2, the group repaid its entire indebtedness to Nama."
The move by Durkan Group to escape the dead hand of Nama is another blow for the secretive state agency, which has been accused of paralysing the property sector through its failure to kickstart the market by selling assets and greenlighting schemes.
Nama, which was set up in 2009 by the late Brian Lenihan, was established with the aim of restoring liquidity to the banks by helping to decontaminate their toxic balance sheets. It has failed dismally in that regard with mortgage lending last year down a staggering 95 per cent from peak levels.
Last December, a report by former HSBC banker Michael Geogheghan into Nama warned that a failure by the agency to evolve into a more entrepreneurial and confident business was likely to cost the State billions of euro.
Mr Geogheghan warned that Nama had to evolve from its start-up phase into "the pro-active, externally focused, entrepreneurial, confident business it needs to be". His report added that the Nama board was dominated by directors "with control rather than entrepreneurial backgrounds".
Nama must pay off €7.5bn of its €30bn of debt raised to buy over €74bn of loans from the banks by the end of next year. A failure to sell off assets to meet this looming bill "should possibly lead to the assets of Nama being given to one or more third parties to manage", Mr Geogheghan suggested.
By RONALD QUINLAN
Sunday January 08 2012
RAY Grehan's decision to declare bankruptcy in the UK in the dying hours of 2011 shouldn't have taken Nama by surprise. But it did.
Today, Mr Grehan -- who famously paid €171.5m (a record €84m per acre) at the height of the boom to acquire the Veterinary College site in Ballsbridge -- explains his dramatic move, saying it puts him in a "better position to rebuild, rather than staying on and allowing Nama to prolong the agony with a noose around my neck".
By going for bankruptcy in the UK, the Glenkerrin Homes chief will have a clean bill of financial health by the end of this year. Most significantly, the €300m judgement the State's so-called 'bad bank' obtained against him here last November will not be worth the paper it is written on. And while Mr Grehan understands that there will be public anger, given that this money is owed to the taxpayer, it's an anger he believes is misdirected.
"I did not choose to go into liquidation or receivership. I worked with Nama. I signed a memorandum of understanding with them to work out our assets. We were the best-placed people to do that.
"Had they worked with us, they would have got the bulk of the money back -- probably it all -- over the eight-year plan," he claims.
The Galway-born developer's anger towards Nama becomes clearer when he is asked for his view of its chief executive Brendan McDonagh's announcement that the agency would sell a significant proportion of its UK property portfolio by 2013.
"The minute Brendan McDonagh said they were going to unload their assets in the UK over a two-year period, they wiped probably 20 per cent of the value off that portfolio. All the wealth funds in the world are looking at that.
"London is a very small market and a very specialised market. You can't go in there and put several major assets on the market at the one time. It's a very fickle market and one that you work with very carefully and quietly to sell assets," Mr Grehan says.
Referring to his own company's experience in London following Nama's intervention in its affairs, he adds: "I had a deal done for the hotel we had in Shoreditch for Stg£83m (€100m) the week Nama decided to appoint a receiver.
"The buyer was an American fund and they walked away when we were within 12 weeks of completing the hotel extension. They couldn't get certainty as to when it would be finished.
"The receiver put the hotel back on the market and got an offer for Stg£74m. They went into due diligence for 30 days and came back and offered them Stg£64m for the hotel.
"Today, the hotel extension is still not completed and it has cost the taxpayer millions.
"London is a market that only developers know. I've been in that market for 12 years. Nama don't have the expertise or the know-how to work the market for the benefit of the taxpayer."
'The minute that Brendan McDonagh said they were going to unload their assets in the UK, he wiped probably 20pc off the value of that portfolio'
Asked how international investors viewed Nama, he says: "It's very simple. The funds' view is that Nama are not there to deal. The funds' view is that they have wasted a lot of time trying to put together deals with Nama and have met closed doors. A lot of funds are pissed off with Nama.
"Nobody knows what the game is in Nama -- I don't think they know themselves. They have buried themselves in paperwork. As a result, they're very slow with their decisions and I don't think they're able to keep up."
A spokesman for Nama responded to Mr Grehan's claims, saying: "With respect, we don't believe Mr Grehan could be considered an objective commentator on Nama."
Whatever their opinion, Mr Grehan is already going back into business in London.
"Over the last couple of months, I've been approached by several funds to head up various property portfolios for them. Nama has been adamant that clients of theirs cannot get involved in heading up funds and that curtailed my activity in the Irish market.
"By doing this (declaring bankruptcy), maybe it will free me up from that and leave me in a better position to rebuild, rather than staying on and allowing Nama to prolong that agony with a noose around my neck over several years.
"Hopefully, we'll be successful in rebuilding a company that can possibly come back to Ireland in due course. I feel somewhat hurt that I've gathered millions and millions of euro (in taxes) for the Irish taxpayer down through the years and now a State agency (Nama) has basically kicked me out of the place and left me with no choice.
"Over the next few months, you will see a lot of people looking at the same options. I know for a fact there are several well-known people looking at it."
Asked if he regretted the massive €171.5m he paid for the Veterinary College site in Ballsbridge, Dublin 4, he says: "We paid a huge price for it on the day. In hindsight, we overpaid for it. The figures at the time would suggest we would have got a very handsome return had the market held -- but it didn't and it was too big of a bite at the time. These things happen in property."
Mr Grehan's greatest regret, however, is that he and his brother Danny didn't act quickly enough to take "hard decisions" in relation to the company controlling the Vets' College site, decisions that he believes could have saved the Glenkerrin Group.
And while he might be seen as having taken the 'easy way out' by declaring bankruptcy in the UK, Mr Grehan is adamant that he didn't take the decision lightly.
"Bankruptcy is not a lightly taken decision. It's a tough time, watching a portfolio built up over the past 25 years being unwound and taken apart. It takes its toll and it's not where we want to be, but at least we're alive and we're not in the Mater Hospital suffering from a fatal illness. We'll take it on the chin and we'll get back on the road again.
"You look at Donald Trump. He's gone bankrupt three times. In America, you're seen as a more secure credit risk if you've gone through bankruptcy as you're more cautious. Of course you learn an awful lot. I'll be hoping to put it [the experience of bankruptcy] to good use when we come back."
By Marc Coleman
Sunday January 08 2012
It was my first and best economics lecturer John O'Hagan who told me that of all the other sciences, economics was closest to medicine. Economies are, like human beings, highly complex and thinking of troubled economies as sick patients is a useful way of grasping that complexity.
One of the most threatening disorders facing our domestic economy and chances of recovery right now is the condition of our property market and the closest medical analogy I can think of to describe the problem is bipolar disorder.
As loved ones of those who suffer from it know, the swing from exhilarated highs to depressive lows is exhausting and distressing. Likewise the property market's swing from the highs of early 2007 to its current lows has taken its toll in the form of reckless personal borrowing, an illusory surge in tax revenues and a resultant wasteful spending binge.
Now we are left with the lows: a depleted exchequer, ruined banks and the millstone of negative equity forcing over a third of a million households to slash consumer spending as they face a lifetime of debt.
As with bipolar disorder, the proper diagnosis is not to exacerbate the swings, but stabilise them. Between extreme highs and lows is a sustainable middle to be reached using the right medication: this week economist Peter Bacon suggested doing for property buyers nationally what Nama does for buyers of its properties; assuming the risk of future price falls. Only then can buyers be enticed back into the market, he reckons. The €1.25bn payment of taxpayers' money to holders of unsecured bonds in Anglo Irish Bank will this month remind us just how willing the State is to assume risks for bondholders. And that is a fraction of the amount guaranteed by the promissory note. Yet it is enough to greatly help refloat the market in the form of a stamp duty rebate that would wipe out much of the negative equity for those who paid a fortune in property taxes during the boom, and who face double property taxation in the future.
As the latest Central Statistic Office house price index shows, average property prices are now 46 per cent below peak 2007 levels and roughly back to 2002 levels. Have they fallen enough? Could they fall further? Have they fallen too far?
The distressed state of the property market strongly suggests the latter to be the case. In its latest survey, the Irish Banking Federation puts the mortgages drawdown total at just 3,607 for the third quarter of last year. When compared to the 53,543 drawdowns in the same period of 2005 -- and even allowing for 2005 being a boom year -- this is a traumatic low. One source -- Rachel Doyle of the Professional Insurance Brokers Association -- suggested that between 60 and 80 per cent of mortgage applications are being refused.
While we need a thorough report to be sure, several indicators suggest that price levels prevailing in the year 2004 -- while overvalued in that particular year -- are probably now a good benchmark of where the market should settle: even if government forecasts are optimistic, Gross National Product and Gross Domestic Product should this year settle at 2004 and 2005 levels, respectively.
Despite widening spreads with base rates, European Central Bank rate cuts mean that retail mortgage interest rates are broadly similar to 2004 levels. Despite higher unemployment, the level of employment, 1,805,500 persons, is consistent with 2004 levels. And despite significant tax hikes, gross income -- which remains the basis for approving a mortgage -- remains above 2004 levels. And despite recession, population growth since 2005 -- a rise of one-third of a million from 4.2 million in 2006 to nearly 4.6 million last year -- has been stunning.
But three factors are hampering the market besides the absence of bank lending: supply, fiscal policy
and negative equity. The supply issue is significant but has been exaggerated. Far from 300,000 properties being vacant the National Institute for Spatial and Regional Analysis estimates that the number of vacant properties is in the region of 100,000. Mr Bacon agrees that the demolition of ghost estates is one way to restore the balance between supply and demand. Against the backdrop of a third of a million population increase -- and with statistics indicating about 2.6 persons per household -- there is no shortage of demand to mop up this excess.
Fiscal policy and bank lending are the more serious obstacles to recovery and here we are witnessing a spectacle out of the Madness of King George, with bewigged doctors applying the quack solutions of bleeding the patient by overtaxation.
In last Thursday's Irish Times one writer asserted that "a lack of property taxes also contributed greatly to the property bubble ... A property tax is therefore essential". But far from there being a "lack" of a property tax around 40 per cent of the €3bn paid in stamp duty between 2004 and 2007 -- around €1.25bn -- was paid by homeowners (the same amount, interestingly, as will be paid this month to Anglo bondholders). So the real cause of the boom-bust cycle was not the absence of any tax but the explosion of credit caused by negative interest rates and poor bank regulation. Planning factors -- a myriad of failures that limited housing supply -- also contributed. The idea that a property tax would have stopped a relentless tidal wave of credit from producing a boom is misguided. The idea that a distressed market can suffer the imposition of a property tax that, according to the ESRI, could amount to €1,000, and have any chance of recovery is misdiagnosis.
So what does the market need? Between 2007 highs and current lows there is a sensible mid-point that can be achieved if bank lending resumes and two more policy changes occur: a decisive shift away from tax increases and towards real spending reductions: having risen by 55 per cent between 2004 and 2009 gross current spending needs to fall now by much more than the mere seven per cent envisaged in the Government's expenditure and reform plans.
The issue of the promissory note must also be revisited: spending billions to guarantee the risk of profit-seeking banks while doing nothing to tackle the negative equity crisis faced by those who merely invested in a family home is neither economically nor politically sound: property will never drive the economy again, nor should it. But by effecting a one-off injection into the market to alleviate negative equity it could be decisive in allowing spending, confidence and household finances to return to normal.