Income Property

This is the year the Nama deferred payment
scheme was launched, a ghost estate was sold at a distressed property
auction, and the country’s most expensive property failed to sell
despite a 74 per cent price drop.

Here are 10 properties that sum up
where we are now…

1. Walford, Shrewsbury Road
Now
that the madness of the property boom is a distant memory, it has
become apparent that not only was Walford on Shrewsbury Road in Dublin 4
never worth the €58 million paid for it in 2005, it has failed to find a
buyer for it, even at the radically reduced price of €15 million. The
Edwardian house on 1.8 acres went on the market in September 2011 but
was recently withdrawn, presumably because it failed to meet the guide
price.

When it was sold in 2005, the cachet of the road and the
development potential drove rich individuals into a frenzy, pushing the
price substantially over the €35 million guide. Bought by an entity
known as Matsack Nominees Ltd, the beneficial owner was known to be
Gayle Killilea, wife of property developer Seán Dunne. The couple now
live in the US.

2. Humewood Castle Estate
Dubbed
the “Walford of the country estate market” because of the stratospheric
price paid during the boom and its dramatic fall in value, Humewood
Castle Estate in Kiltegan, Co Wicklow, a gothic mansion on 427 acres, is
now asking a bargain basement €8 million through Sherry FitzGerald and
Christie’s International Real Estate. In 2006, developer John Lally of
Lalco bought the estate for €25 million. His ambitious plans for a €250
million luxury golf estate never came to fruition and now Nama is hoping
to tempt investors with the reduced price tag.

3. The Veterinary College site, Ballsbridge
Amid
the developer frenzy to snap up trophy properties, Ray Grehan’s company
Glenkerrin made headlines in 2005 when it paid the highest price ever
for a commercial site; an eye-watering €171.5 million for the 2.02-acre
Dublin 4 site. The site has recently been valued at a mere €20 million:
that’s a drop of 88 per cent. Nama is continuing to pursue Grehan, who
has been living in London since May of last year and who was declared
bankrupt by the High Court there on December 30th. One industry source,
who declined to be named, reckons Nama will hold off putting the site on
the market for two to three years, in the hope that values will rally
significantly. “I don’t think the site would attract serious interest in
the current market,” says the source.

4. Treasury Building, Lower Grand Canal Street, Dublin 2
When
Treasury Holdings redeveloped the old Boland’s Mills as a
state-of-the-art office block at the start of the 1990s, little did it
know that one of its future tenants would be Nama, with which it is
currently embroiled in a nasty legal battle. The company has begun
proceedings against Nama and is contesting the constitutionality of the
legislation governing its activities. It is understood that Treasury,
which is jointly controlled by businessmen Richard Barrett and Johnny
Ronan, has made an application to the High Court on both matters. This
relates to Nama’s decision in January to appoint joint receivers to
certain assets secured against loans of more than €1 billion owed to the
agency.

5. Woodlands, Ballyjamesduff, Co Cavan
Woodlands
is one of the many unfinished estates around the country. A four-acre
part of the estate with only three houses built sold to a builder at the
Allsop Space auction of distressed property this month. It fetched
€122,500: more than three times the reserve and has prompted speculation
that this could herald the public sale of more unfinished estates to
third parties.

Lorcan Sirr, a lecturer in the school of real
estate and construction economics at DIT, says he hopes the builder who
bought it has a long-term plan. “Given that Co Cavan currently has a
housing oversupply of 4,254 units it could be a very long time indeed
before the property market there recovers.”
Robert Hoban, director
of auctions at Allsop Space, says selling to a third party is just one
of a number of options to address the issue of a reported 2,000
unfinished developments in Ireland. “The successful sale will hopefully
aid those charged with calculating the value of these schemes.”

6. Sandhouse Hotel, Donegal
In
March the sale of the Sandhouse hotel in Rossnowlagh, Co Donegal, for
€650,000 to Paul Diver, its manager of 20 years, captured the public
imagination because its value had dropped to such an extent that it was
cheaper than the average semi-d in Dublin 4. The 55-bedroom hotel
overlooking Donegal Bay, which was on the private treaty market for two
years, was once asking €4.5 million, and was sold under the instruction
of its liquidator KPMG.

On the day, Diver said: “I just can’t
believe it. It’s a total adrenaline rush. It’s been a long, long road
but we’ve made it.” According to Robert Hoban, director of auctions at
Allsop Space, while the licensed and leisure sector has been going
through a very challenging phase, the sale of the Sandhouse hotel, and
the nine other auction sales in the leisure sector “has established that
there is a marketplace, at a sensible price”.

7. Priory Hall, Donaghmede, Dublin 13
There
is a chink of light at the end of the tunnel for residents of Priory
Hall in Donaghmede as AIB, one of the main banks providing mortgages on
properties there, has said it will participate in talks aimed at
resolving the residents’ housing and loan problems. The residents of the
187-unit apartment built by developer Thomas McFeely, who has been
declared bankrupt, were evacuated last October when the development was
declared a fire hazard.

Lorcan Sirr of DIT believes Priory Hall
could be the tip of the iceberg as a result of inadequate enforcement of
the building regulations: “Self-certification by professionals is worth
the paper it is written on only if the penalties for getting it wrong
are sufficiently tough on the professional. Dublin City Council’s
dilution of its traditional civic duty to look after its people by
mostly not inspecting developments, but just designs, must also be
noted,” says Sirr.

8. Loughmore Square, Killeen Castle
Last
week Nama launched a deferred payment initiative on 115 properties
around Ireland, including luxury homes on a golf course at Killeen
Castle in Co Meath where prices have reduced by as much as 80 per cent
since the scheme was launched in 2008.

It’s understood 17 of the
18 Co Meath homes are now sale agreed. Originally built as investment
properties and holiday homes by Castlethorn Homes builder, Joe O’Reilly,
who also developed Dundrum Town Centre, the three-beds were originally
priced from €1.2 million.The same homes sold last week for about
€270,000; one four-bed was asking €360,000.

The Nama deferred
payment initiative sees us enter an era where people who buy into these
schemes will be protected against negative equity for five years.
Elsewhere DNG has sold two units out of four under the same scheme at
Carrickmines Manor in Dublin 18.

9. Elysian Tower, Cork
The
81m tall Elysian Tower on Eglinton Street in Cork’s docklands cost €150
million to build on the site of a former postal sortingoffice and was
launched with great fanfare in 2008 by developer Michael O’Flynn. Hailed
as a “beacon of light” for a “new dawn”, it is one of the tallest
buildings in the country and one-bed apartments went on sale for
€375,000, while penthouses were between €1.4 million and €2 million.
However
the timing of the launch, just as the property market had gone into
freefall, couldn’t have been worse . The “idle tower” as it’s known
locally, is now in the hands of Nama and stands largely empty, with
fewer than a quarter of the 211 residential units occupied.

10. St Matthias Wood, Killiney, Co Dublin
We
hear about family homes being repossessed but don’t often get to see it
unfold on camera. Whether you think Brendan and Asta Kelly
stage-managed their eviction from their Killiney home to garner sympathy
or that they were the unfortunate victims of the property crash, it
marked the start of the publicised eviction.
The Kellys originally
purchased the house in 2004 for €3.2 million, with a €2.2 million
mortgage from Irish Nationwide Building Society, now IBRC, and built a
large property portfolio of about 21 properties. The couple last made a
mortgage payment on their Killiney home in 2009.

Report – EDEL MORGAN - Irish Times

It is going to take more than a decade to unwind the excess property assets financed by the banks during the noughties

THE BANKS in Ireland, including IBRC and Nama, have more than €30 billion of Irish loans relating to property which they need to unwind over the next five to seven years in order to meet the Basel capital adequacy requirements and also repay the temporary ECB loan support. This unwinding process has started by the sale of overseas assets and loan books but is mainly outstanding in Ireland.

Can this deleverage be achieved? What will be the timescale and what will be the nature of the property market during the process? Should the Government provide further help to the industry?

These are key questions for all close to the banking and property industries. In a comprehensive discussion note* I have tried to join the dots of the many intertwining factors. I have drawn on two recent studies on the overall European property markets published by the Urban Land Institute and by Morgan Stanley, which reach much the same conclusions for Europe as I do for Ireland.

A summary of my conclusions is as follows:

1.There is no magic bullet to resolve deleveraging in the banks and kick-start the property industry. It is going to take many years (10+) to unwind the excess property assets financed by the banks during the noughties. The direct sale of property at the scale necessary to achieve this unwinding is not achievable due to the limited size of the Irish property market – probably a max of €1 billion per annum. There will be further erosion in values if too much property is brought to the market in a dash for cash by all or any of the banks.

2.The sale of loan books will make some contribution to the unwinding process for quality books, but it will be slow and limited for the non-quality loans. In the UK, two-thirds of the properties financed by banks are secured against non-prime property and probably higher here. For lower quality books, any purchaser will be looking to the underlying property market to directly or indirectly get his pay-off. He will seek to discount his price to reflect a long-haul, high-risk investment with ultimate dependence on the property market to achieve the intended result.

3.Internationally, funds are limited and contracting. Ireland is in competition with most countries in Europe for such funds. For Europe, Morgan Stanley estimates a €400-€700 billion loan gap for commercial property lending. The volume of funding available for Ireland to buy loan books or lower quality property will be limited and

highly priced. The high returns expected by buyers with funds, mainly overseas, may make the route impracticable as it would involve too big haircuts for the banks who may just decide to “sit it out”.

4.Property in the early noughties was a sexy, exciting, high-reward activity and every Irishman thought he could make his fortune by being a “player” – mainly with someone else’s money. That paradigm of investing with someone else’s money has changed to “no leverage or low leverage”. That’s the way it used to be up to the start of the banking madness in the mid-1990s.

5.Most banks, here and in Europe, are heading back to their old knitting – to being lenders for commercial property for a period not exceeding five or seven years. This lending period is not compatible with lending for property investment where fixed terms of 15 years-plus are needed to match the relatively low cash flows generated by property. Banks will not be lending significant money to new borrowers to solve the problem.

6.Property is back to being primarily a long-term equity-based investment, giving ungeared income returns of 7 per cent plus inflation. But the banks will be unwilling holders of property, directly or indirectly, for many years.

7.The property market and the real economy are heavily intertwined. While the core elements of the economy will be driven by external forces, the Government, by giving further support to investors and owners in the commercial property industry (not to be confused with the construction industry), could accelerate the transition from a property market based on selling distressed assets to a market driven by equity investors.

8.Helping the property market recover would give a direct boost to the rest of the domestic economy by:

a)Growing property values and thereby stabilising the capital base of the banks.

b)Giving confidence to consumers.

c)Getting the building industry moving.

d)Encouraging the repatriation of overseas deposits.

10.The Irish commercial property industry will be smaller and focused. Deals will be smaller and take more work. Clients will be different: they will comprise equity investors (not borrowers), bankers and insolvency practitioners, and, of course, tenants, owner-occupiers and distressed borrowers. There won’t be too many developers around, renovations and extensions will be the order rather than new build – until values rise to well above replacement costs – probably several years away.

Report by BILL NOWLAN – Irish Times

The buyers then find a property they want that is part of the NAMA scheme.

They will need a deposit of at least 10pc of the value of the property.

If they are buying a €200,000 house, this means the buyer will need a deposit of €20,000.

So the house hunter borrows €180,000 from the bank and repays the mortgage based on this amount for five years.

The scheme works by NAMA deferring 20pc of the value of the property, which works out at €40,000 in this case.

But for the first five years the homeowner makes payments on the full €180,000 they have borrowed.

If, after five years, when the property is revalued under the scheme, the property value has fallen, then the homeowner will end up not having to pay the full amount of the mortgage. This is because NAMA has deferred up to 20pc of the property purchase price.

If the property falls in value by 20pc, then the €40,000 will be written off by NAMA.

If it falls by 10pc in value, then €20,000 of the deferred amount will not have to be paid.

What this means is that after five years if the property has collapsed in value by 20pc, then the mortgage will fall from the original €180,000 borrowed to €160,000.

In fact, what the buyer owes will be even lower than this as they will have already made repayments on the €180,000.

Report – Irish Independent

FORMER Taoiseach Charlie Haughey’s Abbeville mansion has gone on the market for a fraction of the €45m he sold it for a decade ago.

Abbeville, in north Dublin, now has an asking price of just over €7m – after the company that owns it went into receivership.

The former Taoiseach sold the property with stud farm in 2003, and was believed to be under pressure to sell as he negotiated a €5m settlement with the Revenue Commissioners at the time. The new asking price is 16.7 pc of what Haughey sold it for a decade ago.

However, the purchaser, Joe Moran’s Manor Park Homes, subsequently went into receivership after Bank of Scotland Ireland sought to recover outstanding debts.

Receiver Tom Kavanagh selected estate agents Savills from a number of agents whom he asked to advise on the sale of Abbeville.

The estate appears in today’s Irish Times property section and is described as: “A magnificent Gandon Mansion in a parkland setting just 10km from Dublin City Centre”.

The country house dating from 1770 was redesigned by James Gandon, architect of the Custom House and the Four Courts. The dining room is according to the National Inventory of Architectural Heritage: “regarded as Gandon’s finest surviving domestic interior”.

The house appears bare of furniture in the publicity photos, which show the gothic drawing room, lavish ballroom and Irish bar, put in by Haughey and designed by architect Sam Stephenson. The estate also boasts 23 stables, a tack room, a dairy, paddocks, an equestrian arena, outdoor swimming pool, gate lodge, gardener’s cottage and a lake along with 250 acres of land.

Manor Park had made a number of efforts to develop the property but they were restricted because the grounds are zoned green belt and the house is a protected structure.

Eventually the company did get approval for a golf course, a 70-bedroom hotel, some villas and some townhouses. However, the market crashed before it got a chance to undertake any development.

With the new reduced price the estate could go fast to a private buyer – someone with a love of horses, given the estate’s arena and stables and 250 acres.

“It would suit someone like Michael O’Leary with his love of horses and his work at Dublin Airport,” said one observer.

Given
that, a mere five or six years ago, well-located but modest three-bed
terraced houses were selling for that amount and considerably more, they
hardly expected us to jump up and down with excitement at the news.

And
considering that a certain percentage of these properties would have
been purchased within the last decade for approximately three times the
figure they have recently achieved, their vendors are unlikely to be
thrilled either, since despite selling their home many are probably
still up to their necks in debt.

But the estate agents did at
least confirm that many of the trophy properties are being snapped up by
ex-pats, who are now returning to the Irish property market after a
long absence. And, in much the same way as most of the buyers at
Allsop/Space distressed property auctions are cash buyers, we must
presume that so too, are many of the buyers at the top end of the trophy
homes market.

And, if we were in any doubt about the increase in
the number of cash purchasers and the lack of mortgages being issued, we
are now under no illusion, as it was also confirmed this week that
there has been a further drop of 2.4 per cent in bank lending for
household mortgages since this time last year.

But the one snippet
of news which might give more prospective ex-pat buyers the incentive
they need to repatriate their savings and invest in Irish property was
the result of research from the Central Bank, which found that property
prices in Ireland have not just hit the floor but have gone straight
through it, as they have overcorrected by between 12 and 26 per cent.

And
the reason for this over-correction, much as one might expect, is a
lack of confidence in the home property market (would you blame our poor
citizens?) and the further drop in bank lending for household
mortgages.

So, Irish ex-pats are taking this opportunity to return
to the “auld sod” where they can now get a lot more bang for their
buck. Much to the amazement of those already living here, many of whom,
would be gone in the blink of an eye if they could, our ex-pats quote
“lifestyle” as the number one reason why they wish to return to this
recession-ridden country, along with the natural desire to bring up
their children in close proximity to their family and friends.

To
clarify, I’m not talking about recent emigrants, who’ve been driven out
of Ireland in the last five years, by the Celtic Catastrophe but the
ones who left before that, in the last bad recession (now regarded as a
minor economic blip), in the 1980s and early 1990s.

Many are in
their 40s now and have young children born within the past decade, after
their parents completed the obligatory world tour, found their niches
and established their careers. And ever since these parents have been
planning their exit strategy and their homecoming, when the time was
right.

Unlike those who left these shores in the 1950s, this new
breed of ex-pat has never worn rose-tinted glasses and has kept a
watchful eye on every move we’ve made in their absence.

Whereas
the 1950s emigrants who “did well” in America caused consternation when
they visited home, with their loud voices, strong accents, sun-tanned
skin, brilliant white teeth and “drip-dry” clothes in lurid colours, the
1980s emigrants were far more worldly and discreet as they quietly
observed our rise and our fall from grace from a safe distance.

And
as Ireland’s light began to shine in the late 1990s, we became
increasingly inhospitable to our ex-pat visitors, taking the view that
they had deserted the ship when it was threatening to sink and now
wanted to return for a slice of the action.

In fact, in time the
roles were reversed completely and we went to visit them instead. No
longer was there any talk of ex-pats returning home to live, as by that
stage, property prices had spiralled way out of their reach.

Only
Irish citizens could afford to buy Irish property at the time, and
somehow it never dawned on us that there was something a little strange
about that.

Time to roll out the red carpet again and welcome the
return of the Irish diaspora. We need every one of them home now, along
with every last cent they have in their back pockets.

Isabel Morton – Irish Times