Special Report 116 - National Asset Management Agency: Progress on achievement of objectives as at end 2021
The National Asset Management Agency (NAMA) was established in December 2009 as a key part of the State’s response to the 2008 banking crisis. The purposes and functions of NAMA are specified in the National Asset Management Agency Act 2009. 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 fourth progress report and it considers NAMA progress in relation to achievement of its objectives up to the end of 2021.
Loans and related NAMA debt
NAMA paid a total of €31.8 billion to acquire property related loans from five financial institutions. The acquisition was funded by the issuance of guaranteed senior debt (€30.2 billion) and subordinated debt (€1.6 billion).
Mainly as a result of loan/asset sales, the value of NAMA’s debtor’s loan balances had reduced from €28 billion at the end of 2010 to around €715 million by the end of 2021. The residual loans were secured mainly by assets located in Ireland.
NAMA set targets for debt redemption. It met its initial target of redeeming €7.5 billion of its debt by end 2013, and significantly exceeded the target of redeeming €15.5 billion by end 2016. All senior debt was repaid by the end of October 2017 and the subordinated debt of €1.6 billion was fully redeemed in March 2020.
Cost recovery
Apart from a net loss incurred in 2010, its first year of operation, NAMA has generated a net profit each year. A strategic objective set by the NAMA Board was the recovery of all costs without recourse to further borrowing. NAMA met this objective. At the end of 2021, NAMA reported total retained earnings of €1.8 billion. This was after the transfer of a total of €3 billion to the Exchequer in 2020 and 2021. As at June 2022, NAMA projects a life-time surplus of €4.5 billion.
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 property related investments. NAMA has not set a target IRR for its operations.
When NAMA was acquiring the loans, it projected the cash flows expected to occur over the lives of the loans and discounted the cash flows at an average rate of 5% to yield the loan acquisition values. If the cash flows had turned out exactly as projected at the time, NAMA would have generated an IRR on its investment of 5%.
At the end of 2021, the projected IRR on NAMA’s overall operations was calculated to be around 6.7%.
Debtor management and loan sale
In 2010/2011, NAMA acquired from the participating banks debtor loans with a par value totalling €74.4 billion at a cost of €31.8 billion, representing a discount of 57%. It then re-organised the loans from the various banks into debtor connections, for management purposes.
In the course of the audit of the financial statements for 2021, it was noted that NAMA had finalised a sale of loans related to two companies, with a par value of €10.46 million for consideration of €265,000 i.e. a 97.5% discount on the par value. The loans had been acquired by NAMA at a discount of 49%, and the sale of the loans resulted in NAMA incurring a loss of just under €6 million. The loans had not been openly marketed prior to the sale, as normally required under NAMA’s loan sale policy.
The collateral for the loans comprised 14 occupied residential units, 28 unfinished residential units, and seven plots of land totalling 20.9 hectares with varied planning status, all of which were in provincial locations in Ireland.
Up to October 2018, the debtors managed the property assets. Following the commencement of enforcement proceedings which the debtors strongly resisted, NAMA appointed a receiver over the assets. NAMA stated that the receiver resigned with effect from May 2020, after a potential sale of 18 unfinished houses and 3.2 hectares to a local authority fell through and he could not find a sales agent to market the properties.
Separately, NAMA commissioned an independent desktop valuation of the remaining assets. The valuation report attributed a total market value of €1.3 million to those assets, but stated that ‘these values are unlikely to ever be achieved or the lands disposed of while the threats and intimidation continue’.1 The valuers stated that they would not recommend that the receiver attempt to sell these assets, as they were not considered marketable. The valuers also noted that a cash investor would be unlikely to purchase these assets and to take on potential litigation and intimidation/threats, for such a low return.
Subsequently, the debtors made an offer that, via a loan sale, would involve settlement of the obligations of the two companies with NAMA for €265,000, in return for which NAMA would release the security over all the collateral properties. The sale of the loans was to a newly-incorporated company that NAMA understood to be promoted and funded by a family relative of the debtors, who was not a NAMA debtor.
NAMA Board approval was sought and obtained in respect of the proposed sales terms. The paper to the Board set out the rationale for recommending the loan sale, stating that the proposed loan sale was superior to alternative options available.
1 No specific instances of alleged threats and intimidation were described in the report.
Commercial property
In 2014, NAMA adopted a secondary objective of the facilitation of the development of office accommodation in Dublin.
When the Dublin Docklands strategic development zone (SDZ) planning scheme was approved in 2014, NAMA had an interest in 75% of the land remaining to be developed in the zone. The NAMA Board approved a strategic business plan for the sites. The business plan did not include formal targets in respect of the stated objectives.
At the end of 2021, 84% of the site area that NAMA had an interest in had developments that were classified as completed and/or sold. By the end of 2022, only one site in which NAMA had an interest — accounting for 3% of the overall target area — was undeveloped. A provisional agreement to sell the remaining site has been reached.
In 2017, the Poolbeg West SDZ planning scheme was approved. The SDZ comprises a number of industrial sites, including two large adjacent sites secured to NAMA. In June 2021, a development consortium acquired an 80% shareholding in the company that owns the sites for €200 million. NAMA retains a minority 20% shareholding in the company.
Commercial housing
In 2014, the NAMA Board adopted the facilitation of the delivery of housing, subject to commercial viability as a secondary objective. In November 2015, the NAMA Board formally adopted a residential delivery plan which set out its intention to “…..provide funding, co-ordinate and manage the delivery of 20,000 housing units by end 2020”. The plan recognised that achieving the delivery target would be a challenge.
NAMA did not achieve the residential output target. As at the end of 2021, it had delivered 11,049 units on sites in which it has an interest. This represents delivery of 55% of the target, a year later than originally projected.
NAMA considers that, in monitoring the achievement of its residential target of 20,000 units, it is appropriate to also take account of 9,971 units 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 had the potential for delivery of 86,000 residential units. NAMA's projection that a total of 12,221 residential units would be delivered on those sites by the end of 2022 would represent only around 14% of their estimated overall capacity.
Social housing
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 many 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 the potential to meet such demand. Ultimately, the responsibility for determining suitability rests with the local authorities and approved housing bodies.
Up to the end of 2021, NAMA had identified a total of 7,283 residential properties as potentially being suitable for social housing. Just 37% of the properties offered were taken up by local authorities and approved housing bodies.
NAMA set a target of delivering 2,000 social housing units by the end of 2015, and this target was met. NAMA did not set a further delivery target. By the end of 2021, NAMA had provided a total of 2,621 units for social housing with a further 66 units at contract stage and 117 units still under construction. Just over half (51%) of all social housing delivered by NAMA is through its subsidiary company, National Asset Residential Property Services DAC (NARPS). It is intended that the Land Development Agency will assume responsibility for NARPS as part of the wind down of NAMA.
