Special Report 111 - National Asset Management Agency - Progress on achievement of objectives as at end 2018
Published on 22 July 2020
The National Asset Management Agency (NAMA) was established in December 2009 as part of the State’s response to the 2008 banking crisis.
The core idea was for NAMA to acquire property-related loans from the commercial banks, to hold and manage the loans and related collateral — mainly property — and ultimately to dispose of all these assets in a manner that protected the State’s interests. NAMA would then cease to exist.
Section 226 of the NAMA Act requires the Comptroller and Auditor General every three years to assess the extent to which NAMA has made progress toward achieving its overall objectives. This is the third progress report. It considers NAMA’s progress in relation to achievement of its key objectives and targets up to the end of 2018. Where relevant and available, additional information relating to later periods is provided.
Loans and related NAMA debt
NAMA paid €31.8 billion to the banks for the loans it acquired in 2010 and 2011. This represented a 57% discount on the loans’ par value of €74.4 billion. The acquisition was financed through debt — €30.2 billion in government guaranteed (senior) bonds and €1.6 billion in subordinated debt.
The value of debtor’s loans decreased from €28 billion at the end of 2010 to €1.2 billion at the end of 2019. The balance at the end of 2019 included additional lending by NAMA to allow debtors and/or receivers over debtor companies to progress development of certain sites and projects. The residual loans were secured mainly by assets located in Ireland.
A key objective set by NAMA was to redeem the debt issued for the loans by 2020. It achieved this target, and from 2014 on, was significantly ahead of the repayment profile implied by the interim repayment targets it set.
- All €30.2 billion of senior debt was repaid by the end of October 2017.
- One third of the subordinated debt had been repurchased by the end of 2018.
- The balance of the subordinated debt was repurchased on the first call date, in March 2020.
A strategic objective set by the Board in 2012 was the recovery of all costs without recourse to further borrowing. This objective was met. NAMA has covered its costs and additional borrowing was not required. At the end of 2018, NAMA reported total retained earnings of €4.2 billion. As at the end of 2019, the NAMA Board expects to return a surplus of €4 billion upon completion of its work.
Rate of return
NAMA has a statutory objective to obtain the best achievable financial return for the State.
The internal rate of return (IRR) is a standard performance metric for commercial property-related (and other) investments. However, it has not set targets for the IRR on its overall investments.
When NAMA was acquiring the loans in 2010 and 2011, it projected cash flows over the lives of the loans that were then discounted at an average rate of around 5% to yield the acquisition value of the loans. If the cash flows had occurred as projected at that time, NAMA would have generated an IRR of 5%.
At the end of 2012, primarily as a result of the decline in Irish property values that occurred after NAMA acquired the loans, the projected IRR on the NAMA investment was around 3.8%. Given the subsequent strong recovery in the property market and NAMA’s investment performance, the projected IRR at the end of 2016 was around 6.2%; the projected IRR at the end of 2018 was around 6.6%.
NAMA’s initial outlay to acquire the loans of €31.8 billion included €5.6 billion of State aid to the banks, which received EU Commission approval. NAMA considers that it is more appropriate to compute the IRR by reference to the market value of the loans at acquisition (i.e. €26.2 billion) and not the €31.8 billion it paid to acquire the loans. On this basis, at the end of 2018, NAMA reported a projected IRR of 12.8%. However, this is not comparable with the original discount rate of 5%.
In 2014, NAMA adopted a secondary objective of the facilitation of the development of office accommodation in Dublin. NAMA had an interest in a substantial proportion of the undeveloped land in the Dublin Docklands strategic development zone (SDZ). The NAMA Board approved a strategic business plan for the sites in September 2014.
The business plan did not include formal targets in respect of the stated objectives. While it was envisaged that construction on the sites could potentially commence in 2016, no time scale was set for the completion of development.
At the end of 2018, construction was underway or had been completed on 70% of the land in which NAMA had an interest. By May 2020, construction was underway or had been completed on sites accounting for 86% of the land in which NAMA had an interest.
NAMA’s statutory functions do not explicitly require it to engage in the development or delivery of residential units. However, the Board adopted the facilitation of the delivery of housing, subject to commercial viability, as a secondary objective. It has sought to deliver residential units for both the social housing and commercial housing markets.
NAMA acquired an interest in a number of residential property developments when it acquired its loans from the participating institutions. These developments included residential units in diverse locations and in a range of stages of completion. While some of the developments were located in areas where there was little demand for social housing, others were considered to have potential to meet such demand. Ultimately, the responsibility for determining suitability rests with the local authorities and the Housing Agency.
Up to the end of March 2019, NAMA had identified a total of 7,050 residential properties as potentially being suitable for social housing, but the demand from housing bodies was significantly lower.
NAMA set a target of delivering 2,000 social housing units by the end of 2015, and this target was met. By the end of 2018, NAMA had provided a total of 2,445 units for social housing. In addition, 36 units were at contract stage. Demand for a further 248 units had been confirmed to NAMA as at March 2019. This includes 1,352 units of social housing leased to 14 approved housing bodies through a NAMA subsidiary, which had acquired the units from NAMA debtors or receivers. The remaining units were provided through direct sales or direct leasing.
Commercial residential delivery
In November 2015, NAMA set itself a challenging target to deliver 20,000 residential units over the five-year period 2016 to 2020, on sites in which it had a financial interest. It was envisaged that the development would be funded wholly or partly by NAMA, in co-operation with debtors or receivers, and potentially with third-party involvement. This approach was adopted on the basis that it would yield a higher return for NAMA, and that it would result in speedier delivery of residential units for the housing market.
NAMA is not expected to achieve the residential output target that it adopted in 2015. As of the end of 2018, it was projecting that around 13,000 units would be delivered on sites in which it has an interest by the end of 2021. This would represent delivery of 65% of the target, albeit a year later than originally projected.
NAMA considers that, in monitoring the achievement of its residential delivery target of 20,000 units, it is appropriate to also take account of 8,025 units it projects will be constructed on sites sold by NAMA debtors/receivers. However, this is not a 'like for like' comparison, because such units were not included when the original target was set.
Where sites have been sold, NAMA has no control over when they are developed and does not provide loans for construction. NAMA has estimated that sites sold by NAMA debtors/receivers between 2011 and the end of 2018 had the potential for delivery of 63,300 residential units. NAMA's projection that a total of 8,025 residential units would be delivered on such sites by the end of 2021 would represent 13% of their estimated overall capacity.