FORMER BANK chief executive Mark Duffy yesterday launched a new business aimed at creating and profiting from a multibillion-euro Irish portfolio of property-linked loans.
Irish commercial property has fallen 47 per cent in value since its peak in 2007, Mr Duffy told a presentation to journalists yesterday. “That’s our read and in that we see an opportunity.”
Mr Duffy and his partner Kevin Warren – co-owners of Asset Resolution Corporation (Arc) – said they had expressions of interest from international pension and insurance funds, but would not comment on reports that they have up to €3 billion available to spend. They hope to buy the loans from foreign-owned banks in the Irish market.
Details of Arc were first revealed in The Irish Timeslast Saturday.
Mr Warren, founder of Warren Private Clients, which manages funds worth €2.5 billion, said the expected return would vary according to the type of property, but for “quality assets” the funds would be looking for a 15 per cent return, including capital appreciation, over seven to 10 years. For more “risky” assets they would be looking for more than 20 per cent.
The State-owned National Asset Management Agency (Nama) plans to purchase assets from Irish banks with a total value of approximately €54 billion and has said it can break even if there is a 10 per cent rise in property values over the coming decade.
Mr Duffy said foreign-owned banks in Ireland have property loans of €61 billion, of which loans with a value of €40 billion are impaired. He said an offer to buy portfolios of loans from these banks would be attractive to them at a time when they are trying to reduce the size of their balance sheets. Arc would be paying “market value” for the assets.
Mr Warren said Arc would be seeking to buy quality commercial property, preferably property that was generating rent. He said he was confident values on such properties would come back, and that there had been a “negative over-reaction” in relation to such property.
Mr Warren and Mr Duffy said the banks would want to sell bundles of assets, including loans linked to land, and they expected hard negotiations. “We have choice and we will choose what to buy,” Mr Duffy said.
Mr Duffy said there had been a change in sentiment towards Ireland amongst overseas investor institutions in the period between May and last month. “That says to me that someone is doing something right. And Nama is central to that.” He said they had been pleasantly surprised by the institutional response to their proposal.
Mr Warren said “walls of cash” have built up in London which are getting a very low return on deposit.
Mr Duffy said the next step was to find out the extent to which foreign-owned banks in Ireland were interested in their proposal. The banks had a pressing need to shrink their assets and deal with distressed debt and Arc could provide them with an opportunity.
The plan was to buy assets in scale from the banks. “The name of the game is to do scale deals, and to do them quickly.” He expects in time other firms will get into the market. “The early bird catches the worm,” he added.
