On the northern edge of Dublin, one of the most visible scars of Ireland’s real estate crash is healing, as cranes and workers return to a mall whose expansion stalled during the bust.
The country’s mainstream lenders aren’t financing the construction work at the Charlestown Shopping Centre. Instead it’s the National Asset Management Agency, the government’s bad bank, which has at least 2 billion euros ($2.7 billion) to invest in Irish projects before finding buyers for them.
“Some people say we’re only selling the low-hanging fruit,” Chairman Frank Daly said in an interview at the four-month-old Marker Hotel, close to the European headquarters of Facebook Inc. and Google Inc. (GOOG:US) in Dublin’s rejuvenated docklands. “But by investing, we are also creating the low-hanging fruit for the next year and the year after that.”
NAMA, having sold loans and projects in the U.K. and Ireland, plans to finish off some of Dublin’s half-built ghost developments as the country’s real estate market emerges from the biggest slump in Western Europe. Irish commercial-property returns rose to the highest in almost six years in the second quarter, research firm Investment Property Databank Ltd. said. Annual home prices climbed in June for the first time in more than five years, the Central Statistics Office said this week.
Last week, NAMA said it’s teaming with Los Angeles-based Oaktree Capital Group LLC (OAK:US) and Irish building company Bennett Construction Ltd. to develop part of Dublin’s south docklands. NAMA’s holdings in the area around the River Liffey include a plot of land once earmarked for the U2 Tower, a project endorsed by the Irish rock band that was shelved in 2008.
NAMA is seeking to resurrect the residential project, according to a filing to the city’s municipal authority. This time, the tower would have 18 stories instead of 36.
Office-property values in the docklands area climbed 5 percent in the second quarter from the previous three months, IPD said in a July 23 report. The rest of central Dublin had an increase of 0.6 percent.
NAMA, set up in 2009 to take on and sell toxic mortgages purged from Irish banks, is spending 13 million euros to finish the second phase of Charlestown, a mall complex close to Dublin Airport that opened at the height of Ireland’s Celtic Tiger boom in 2007. A movie complex, a bowling alley and restaurants will be added to existing outlets operated by companies including Mothercare Plc and Royal Bank of Scotland Group Plc (RBS)’s Ulster Bank.
“With more attractions, more people will come,” said Robert Graham, owner of Dublin-based retailer Village Jewellers, which has had a store in the mall since the building opened. “It was great in the early days, but everybody has suffered the way the economy has gone.”
Ireland, which received a 67.5 billion-euro bailout in 2010, entered a recession in the first quarter for the first time since 2009. Retail sales have fallen in four of the last five years, hurting businesses such as Village Jewellers, where business in the last 18 months has been the worst Graham’s experienced.
“In the good times, it wasn’t uncommon to sell a diamond ring for 5,000 to 10,000 euros,” he said. “Now you’re talking 1,000 to 1,500 euros.”
Commercial real estate prices have dropped 65 percent from their 2007 peak, land values have declined as much as 90 percent and home prices are 50 percent below the market’s peak. As a result, there are unfinished developments across the country.
NAMA is also finishing a 120-apartment block in a Dublin development called the Grange, on the city’s affluent south side. Surrounded by well-maintained gardens and served by a dedicated concierge service, the project was started by Glenkerrin Homes, whose former head, Ray Grehan, was one of Ireland’s biggest developers during the boom. He was declared bankrupt in the U.K. in 2011 after NAMA won a judgment against him for 312 million euros.
About 100 miles (160 kilometers) away in Northern Ireland, the agency is providing 15 million pounds ($23 million) to complete office buildings at Belfast’s Lanyon Place. The office and leisure complex includes Waterfront Hall, where U.S. President Barack Obama spoke last month.
NAMA wants to “get away from this kind of bad bank where all you’re doing is sweating down assets,” Daly said. The agency has loaned or invested more than 500 million euros in Ireland; it may invest as much as 100 million euros in individual projects currently under consideration, he said.
The drop in Irish property prices since 2010, when NAMA acquired most of its loans, has made the agency’s goal of recouping its investment more difficult, according to Constantin Gurdgiev, an adjunct finance lecturer at Trinity College Dublin.
Dublin’s office-vacancy rate stood at 19 percent in the second quarter, broker Jones Lang LaSalle Inc. estimates, and a recovery in office-property prices outside Dublin is a “distant prospect,” IPD said in its report this week. The city accounts for about 39 percent of the country’s office market, according to the company.
“The danger is that Ireland will undergo a two-tier recovery, much like that seen in the U.K.,” where gains in London commercial property values have outstripped most of the rest of the country, IPD said.
In all, NAMA paid five banks 31.8 billion euros for the loans in its portfolio, a discount of 57 percent on the debt with a par value of 74 billion euros.
“I don’t see how NAMA can achieve the valuations it paid for the loans and assets that it holds, given their quality and the overall outlook for the market,” Gurdgiev said.
NAMA’s Daly disagrees, pointing to the city’s docklands as evidence of the agency’s potential. The bad bank controls about 70 percent of undeveloped land in the area, which is already home to State Street Corp. and Bank of New York Mellon Corp. Nearby, Google is building the Foundry, a conference center close to the 15-story Montevetro building it bought in 2011. With more than 2,500 people working for the technology company in the area, the neighborhood is now known locally as Googletown.
“If things do get moving, the docklands is going to be developed fairly quickly,” said Dick Gleeson, who is responsible for planning and development in the Irish capital. “It’s a benefit to have NAMA involved because they represent a lot of the land owners.”
NAMA’s strategy may also help to restore confidence among Ireland’s battered construction companies. The industry has been shrinking for six years, according to monthly data compiled by Ulster Bank.
No new offices were built in 2011 and 2012 in Dublin for the first time since 1964, Jones Lang LaSalle Inc. said last month.
“You’re not going to get 20 cranes back overnight,” Daly said. “But let’s see one or two cranes and that will instill confidence.”
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