NAMA – ‘A Work Out Vehicle – Not a Liquidation Vehicle’

Our industry is accustomed to good old fashioned property bubbles- but this is different. We got hit by an international tsunami as well as a local bubble. I look back and wonder how we got from being the most adventurous and independent property market in Europe to being the most controlled one. The answer is that we built too much, borrowed too much, bought too much, and did all this too quickly and without appropriate checks and balances in place. In past property bubbles, the bankers, Regulators and Government eventually rationed the availability and the price of money and called a halt to property excesses before too much damage was done. This did not happen this time; no one shouted stop! The instincts of the speculators, developers and investors turned into a feeding frenzy. In the process property prices at least doubled from what I would regard as a stable position and they have now come crashing back down. They are unlikely to get back to 2007 levels for a very very long time.

In the circumstances the Government had little choice but to set up NAMA. It was the only viable way to save the banks, who are even more critical to the overall economy than the property industry. As a result NAMA is now the main banker to our industry and all key decisions will emanate from NAMA for several years. So we are where we are, but how do we get out of here? Hopefully NAMA will have a relatively short life and our industry will return to normal territory soon. Fortunately its semi-nationalisation is not ideologically driven – only the 80% land-tax element is (see box).

Having resolved the banks’ balance sheet problems in practical terms, NAMA’s job is threefold, as follows:

1. To effectively warehouse the oversupply of houses, offices, development sites etc, and feed them out as the economy requires.
2. To restore an operational property and construction industry in Ireland.
3. To repay- over time- its Bonds with the funds realized from the sale of warehoused property assets.

The key to the capacity of NAMA to do this work is the almost free line of credit given to it via the massive €54bn ECB supported Bonds issued to the Banks and currently costing1.5% p.a.

The modus operandi selected by NAMA is to require all its significant borrowers to prepare Business Plans showing how they intend to work out their portfolios and repay their borrowings over time. As NAMA’s CEO Brendan McDonagh said at a recent conference, NAMA is not a liquidation vehicle: it’s a work-out vehicle. NAMA wants its borrowers to produce plans showing how they will survive (and hopefully prosper), and thereby repay their borrowings. The last thing that the management of NAMA will want is to take direct control over millions of square feet of empty buildings and acres of development sites. It will want developers and borrowers who know every detail of their schemes to stay in control, to add value, and to work in collaboration with NAMA to achieve a satisfactory outcome for both parties. But, while NAMA will not want to take possession of land and buildings, it will have the powers to do – so don’t mess with it!

The key to survival will be the quality of the Business Plan presented to NAMA. The calibre of these Business Plans prepared by borrowers/ developers will impact on their contractors, subcontractors and suppliers, and on their professional advisors such as architects and QSs. So the big issue is how to go about preparing a robust Business Plan that will get the support of NAMA’s Management and Board.

NAMA in its own Business Plan gives some help in this regard. It wants the following to be included by each borrower:

• Current situation
• Level of indebtedness
• Full list of assets and liabilities
• Short, medium and long-term objectives
• A list, in order of priority, of assets to be disposed of and assets which require additional investment etc
• Funding requirements.

The essential part of any Business Plan will be the cash-flow statement. This will show the projected movement of assets and resulting funds over a realistic time span, whether it be 3, 5 or even 10 years (the circumstances, including the size and nature of the portfolio, will dictate the time frame). The content of the cash-flow statement will be based on various assumptions made in respect of each asset, including:

• Interest payments being made or accruing
• Cash from disposals and rents
• Payments to creditors and from debtors
• Further expenditure required before an asset can be sold
• Further equity input or borrowings and sources of these.

The most critical element of the Business Plan will relate to assumptions about sales or lettings of properties and their price levels. Most Business Plans will have to assume some improvement in market conditions from those currently prevailing, or else the plan will not stand up. The first must be a recovery in the economy, which is critical for us all, but we need to know from NAMA the assumption it will consider reasonable – a 3% p.a. recovery in values, say, or 5% perhaps? NAMA itself has projected its own break-even on a basis of 1% growth, but this is very conservative in my view.

Apart from the need for an overall recovery in the economy so as to restore demand for buildings, much will depend on the local market and the level of oversupply, and on other developers’ plans for supplying product into a given market or sub-market. One of the issues causing concern is to what extent NAMA will seek to control supply in each sub-market. Will it leave it to market forces or will it actually try to control supply? For example, if all the developers intent on providing new office blocks in Sandyford were to get funding and support from NAMA, this would exacerbate an already bad situation. But if NAMA were to favour one developer at the expense of another, this would lead to its own problems. We don’t know how NAMA will address issues such as these, and some indication would be helpful in preparing Business Plans.

When NAMA gets a Business Plan, it will assess it to evaluate whether it is sensible, logical and realistic, and will meet with each of the major borrowers to give a response. If agreement can be reached on a work-out plan, NAMA will work constructively with the borrowers to achieve the optimal outcome. However, if no agreement can be reached and/or the borrower does not wish to cooperate he will be asked to repay his debt in full. If this does not happen or is not feasible, NAMA will take enforcement action against the borrower. NAMA will have the choice of taking possession of the assets or appointing liquidators or statutory receivers. The latter will effectively act as Asset Manager in possession, reporting to NAMA. For those unfortunate enough to have their assets taken over by NAMA, the debt will not be wiped out. Indeed one of the tough provisions in the legislation is that if NAMA takes possession then the property will be valued and only that valuation amount will be credited to the debt. If the property is sold later by NAMA and they receive more for it than the valuation then none of the extra is credited to the borrower’s debt.

So the alternative to coming up with a sound Business Plan is not very attractive, and borrowers would be best to set their minds on becoming a ‘NAMA man’ and producing a robust Business Plan.

My definition of a NAMA man is as follows:

• Trust-worthy
• Technically competent
• Good market/industry knowledge
• Good attitude towards NAMA
• Realistic expectations
• Resourced to walk the talk
• In it for the long haul
• Focused on debt repayment.

So what does all this mean to you as architect, surveyor, builder or supplier associated with developers with borrowings from NAMA? You will need:

• Firstly, to support your client in preparing a good Business Plan, one that gets the support of NAMA. Don’t accept hairbrained ideas based on unrealistic outcomes. NAMA will not support this.

• Second, to look at your own cost inputs. If cost is too high it could jeopardise the whole Business Plan. NAMA will not tolerate excessive costs.

• Third, to recognise your and your client’s weaknesses and try to find solutions to any deficiencies in leadership, management or skilled resources. NAMA will want an ‘institutional’ attitude and performance from its ‘client’ and will not tolerate incompetence.

For you personally, if NAMA decides to run with your client’s Business Plan then your prosperity will depend on its being rolled out successfully. NAMA will need you as a professional or contractor if the plan is to meet its objectives. This is your opportunity. NAMA will not want to get involved in selecting new professionals for projects that already have competent suppliers, contractors or professionals.

As to NAMA’s administrative procedures, we have been told that it will directly control the top hundred borrowers who make up 50 % of borrowings. The other 50 % will be administered by one of the participating banks. Thus, if outside the top hundred, your bank may not appear to change – but that bank will be supervised by a NAMA official who will be calling the shots: forget good old-fashioned relationship banking of the golf club variety!

One of the big concerns that I have about the NAMA project is the amount of time required to carry out due diligence and to transfer each of the loans across to NAMA. This was all planned to be completed by mid 2010, but NAMA have already admitted to time slippages in transferring the big loans, and this does not auger well for the smaller ones. As we all know, the commercial property market has been in a sort of limbo for the past twelve months or more, with no decisions forthcoming from banks on how to go forward. All have been waiting for NAMA. If the delay extends past the middle of next year I believe that NAMA must put in place some interim procedures that allow decisions to be taken by the banks administering these loans. How such an interim procedure might work would need to be worked out, but it would be totally unfair to allow interest to accrue and projects to be frozen simply because NAMA can’t get around to processing what are their new clients.

So 2010 will be the year of NAMA for us all. Those who survive will be NAMA men. We are all on a learning curve – including NAMA. Hopefully by this time next year we will all be in harmonious partnership with our new main banker.

22 Great Tips For Commercial Property Investment

When considering a commercial property investment it is wise to set some standard rules for the review so that you can compare opportunities that the various properties bring you.

Investment properties typically exist in the retail, office, and industrial property markets. We will not go into the other property types of tourism and leisure here in this article as they themselves take more comment and lengthy review.

Here is a useful list to consider with investment property.

Some Key Property Concerns

  • Rent: The levels of the existing rent are important to the investor or landlord but more important are the levels of rent in the future. It is a matter of what rent escalation the lease allows for and in what time frame. A good lease with a good rent review profile in a sound and well managed property will always attract property investors.
  • Outgoings: These are the property running costs. Importantly they should be in balance and in comparison to other properties of similar types in the same region. If the outgoings are out of balance to similar properties then you need to know why as any astute property buyer will ask about the outgoings. They know what are the averages of outgoings in the area and will not want to pay above the average unless there is a solid and sound reason to do so.
  • Supply and Demand: How much other property is coming into the market in the next few years? Will that property affect the property that you are looking at? Could this impact on the tenant profile or interest in your property? This equation or consideration is called supply and demand. It will impact on buyer and tenant interest in the region in which your property is located.
  • Location: Does the property give good exposure to passing traffic or customers and does it have good access for people and motor vehicles? Add to this the consideration and availability of car parking.
  • Design: Is the property user friendly and attractive? A good property investment usually looks good and is well maintained. This is to maintain interest in the property from the tenant and the customer perspective. If these people feel good about the property when they visit it or use it, then you are well on the way to good property performance. As part of this process you can conduct interviews with people as they use the property to see and identify any latent concerns. In the case of retail property this is highly recommended as retail property is strongly geared to the sentiment of customers.
  • Amenities: Are you providing everything that a modern business, tenant, or customer needs? Amenities are many things and it really depends on what the property is doing or serving. Most people that use the property expect ease of use and access to the amenities including toilets, car parks, common areas, etc. Retail property has a higher level of consideration in this category.
  • Services: Are your property services modern and performing well? This would include water, gas, roads, electricity, lighting, telephones etc.
  • Parking: Are customers and tenants well served with respect to the parking of vehicles? Ease of access to the property is critical and at a premium today. Motor vehicles are part of business and life for all people. If parking is not well catered for on the property then the interaction of the property with public transport is critical.
  • Tenant Covenants: This relates strongly to the leases and documents of occupation on the property. The word covenant relates to the clauses or lease terms. Every lease can be different so it pays to read all occupancy papers or leases. Are the leases and tenant profiles strong and attractive to future occupancy?
  • Tenancy Mix: Perhaps this is more critical in a retail property however it can have impact in an office property. Some landlords must be very careful as to the tenants that they select for a building. It is quite possible that a low profile and poorly selected tenant will detract from the customers that visit the building. Other tenants will also then become concerned and potentially have little interest in ongoing occupancy. This then says that not all tenants are good tenants for the property. Add to this another question of proximity and placement of tenants to each other. Are the tenancies well balanced to satisfy the customer demands? Can tenants that are located near to each other affect each others business through impact of customers, product, service, hours of trade, or staff?
  • Management: The strength and processes of a property management team will make or break a property. The property management processes will impact on so many things including rent, operating costs, tenant sentiment, and lease stability. For this reason ask the tenants about the property management experiences that they have seen over recent time. Any negative comments should be explored for hidden problems.
  • Lease Agreements: Are they landlord favorable and do they provide long term attractive and stable occupancy? What is the length of tenure or terms of all the leases and do they expire at the same time? Does this present an issue to the landlord as to property stability and exposure?
  • Transport Routes: All modes of transport to the property should be looked at. Make your assessment as to whether they are convenient and modern. Do they serve the tenants and the customers to the property and how is that done?
  • Source raw materials: In the case of industrial property the access to raw materials can be an issue for the tenant. What raw materials are needed by the business or tenant and can they get to them easily?
  • Power Supply: Industrial property will usually need a serious amount of power for machinery on the property. Access to that power is a decision factor for the tenant that occupies the premises. Ask the local power authority if 3 phase or high tension power is nearby or available.
  • Labor Availability: Business tenants need a labor source as part of their operation. This labor supply needs to be stable and convenient. This is why businesses are located near to transport corridors on the radial road points to a city or town. Is the labor market nearby and active? Can that labor supply reach the property easily? Public transport will enhance this situation.
  • Goods end market: If your tenant is to manufacture anything, they will need to move it to their customers. How close is the product buying market for that tenant and how will they get to it? Is the market for the tenants goods or services growing and strong?
  • Rent and Vacancies: These are always a concern in investment property and need monitoring. Shifts in population and zoning regulations regards property can quickly shift the attractiveness to occupy a property.
  • Pre-lease market: These are the newer properties that are coming on the market soon. They are usually keenly priced or rented and will impact on other existing property in the area. The property investor or developer in the newer property has one goal only and that is to fully lease the finished property as quickly as possible. Expect them to chase the tenants in your building.
  • Owner Occupiers: Investment property moves in cycles between renting and ownership. Many businesses will do either depending on what is more attractive to them in the economic conditions prevailing.
  • Investors demand: The balance between the property market and the share market is interesting to monitor. Investors move into property when they need longer term investment stability. If the share market is volatile and unpredictable, then property investment moves to the front of the line and becomes the investment of choice. The only problem investors can have is in getting the finance from the banks when they need it. This movement between investment types says that you should monitor levels of return that are possible between shares and property.
  • Corporate Businesses: Major businesses like to off-load capital from balance sheets. This means a potential sale and lease back of property from time to time. This is also usually done when the property is in the last stages of use or need for the tenant. They may sell the property and take a lease for a term of years whilst they create the next level of property strategy. Always look for tenants and businesses that are in the stages of change or flux. Mergers, acquisitions, expansions, contractions, etc. all create pressures on the property that the tenant may occupy.

About Multitasking and Vehicle Accidents

One of the main causes of vehicle accidents in the United States is driving distractions. Many have been injured, died, and incurred damages to property every year because of these.

Ironically, even though many drivers proclaim that they drive with safety as their top priority, many of them are still unaware that doing other activities simultaneously with driving can be dangerous and at times even fatal.

On multitasking

There are two words that best describe the lifestyles of many of today’s people: fast and demanding.

Accordingly, many people nowadays are capable of doing two or more things at the same time. Multitasking, for most people, contribute to being productive and being able to save time.

This term usually refers to the manual tasks involved in an office setting. But then, multitasking is not only reserved on such situations-even driving involves multitasking. However, it can be dangerous, especially if the activity is outside of the realm of driving, wherein one has to take the eyes off the road and hands off the steering wheel.

Factors on why multitasking while driving happens

Technology is one factor why vehicle accidents happen in relation to multitasking. Drivers nowadays have their mobile phones in handy, but many of them use them while they drive. Doing so is called distracted driving, and it can greatly increase the likelihood of a person to get injured or killed.

According to statistics, out of 80 percent of drivers who admit to multitasking while driving, 19 percent of them use their mobile phones to answer a call or send a text message.

Incidentally, even the interior design of the vehicle is seen as a factor why drivers multitask while driving. Many car manufacturers nowadays design and build their vehicles with so-called ‘creature comforts’ like drink holders, dashboard audio/visual entertainment provisions, trays, and compartments for certain gadgets like mobile phones and laptops.

Unfortunately, such add-ons only tempt drivers to mind them as they take the wheel; indeed, a serious breach of safety driving rules.

Multitasking activities

Here are some examples of activities that drivers do while driving that can be considered as multitasking:

• Eating or drinking
• Pressing on the controls of the car stereo
• Doing make-up or other grooming activities
• Disciplining children inside the vehicle

Multitasking can indeed cause problems not only for the potential victims, but for the drivers themselves. Accordingly, victims who may think that there is someone liable for their injuries have the right for compensation from the damages received. But first, they must hire a Los Angeles vehicle accident lawyer for them to be properly guided and advised.