NAMA Financial Statement 2020 and Special Report 111 of the Comptroller and Auditor General

Mr. Brendan McDonagh(Chief Executive Officer, National Asset Management Agency) called and examined.

We will engage with witnesses from the National Asset Management Agency, NAMA, this morning. Today's meeting will focus on NAMA's financial statements 2020 and the Comptroller and Auditor General's special report 111, on NAMA's progress in the achievement of its objectives at the end of 2018. We are joined remotely from within the precincts of Leinster House by the following NAMA officials: Mr. Brendan McDonagh, chief executive officer; Mr. Aidan Williams, chairman; Ms Noelle Condon; chief financial officer; Mr. John Collison; chief commercial officer; and Mr. Jamie Bourke, head of strategy and communications. They are all very welcome.

When beginning to engage, I ask members and witnesses to mute their microphones when not contributing so we do not pick up any background noise or feedback. As usual, I remind all those in attendance to ensure their mobile phones are on silent or switched off.

I will explain some limitations to parliamentary privileges and the practice of the Houses as regards references witnesses may make to other persons in their evidence. As they are within the precincts of Leinster House, they are protected by absolute privilege in respect of presentations they make to the committee. This means they have an absolute defence against any defamation action for anything they may say at the meeting. However, they are expected not to abuse this privilege and it is my duty as Cathaoirleach to ensure that privilege is not abused. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks and it is imperative that they comply.

Members are reminded of the provision of Standing Order 218 that the committee shall refrain from inquiring into the merits or policies of the Government or a Minister of the Government or the merits of the objectives of such policies. Members are also reminded of the long-standing parliamentary practice that they should not comment on, criticise or make charges against a person outside the House, or an official, either by name or in such a way as to make him or her identifiable.

To assist the broadcasting service and the Debates Office, I ask members directing their questions to be specific. If a question has not been directed to a specific witness, I ask each witness to state his or her name on the first occasion they contribute. I ask the Comptroller and Auditor General to make his opening statement.

Mr. Seamus McCarthy

As members are aware, NAMA was established in December 2009 to deal with a crisis in Irish banking due to poor property-related lending. The core idea was for NAMA to acquire property-related loans from the commercial banks, to hold and manage the loans and related collateral and, ultimately, to dispose of those assets in a manner that protected the State’s interests. NAMA would then cease to exist. At the outset, it was envisaged that NAMA would have a life of around ten years and would, therefore, be winding up in 2020. However, a Department of Finance review published in July 2019 recommended that NAMA continue to work out its residual loans for a limited period beyond 2021. It further recommended that, before the end of 2021, NAMA would submit to the Minister proposals and a plan for the dissolution of the agency.

The 2020 financial statements indicate that NAMA had operating income of €274 million in the year. This was down from €363 million earned in 2019, reflecting in the main the continuing decline in the value of NAMA debtor loans, which stood at €850 million at the year end, compared with €1.23 billion at end 2019. Administration expenses incurred by NAMA in 2020 amounted to €63 million, down from €67 million in 2019. The profit for the year was €192 million. The last of NAMA’s debt, amounting to €1.1 billion, was repaid in March 2020 and the interest of private investors was redeemed at a cost of €56 million. Finally, a cash transfer of €2 billion to the Exchequer in 2020 was funded from NAMA’s accumulated retained earnings. NAMA’s retained earnings at 31 December 2020 amounted to €2.6 billion.

Under section 226 of the NAMA Act 2009, I am required to carry out reviews every three years of the extent to which NAMA has made progress towards achieving its overall objectives. Because NAMA has a specific purpose to be achieved over a finite life, it is more meaningful to look at its lifetime performance than at its performance in an individual year. The report before the committee today is the third progress report, up to end 2018. Where additional financial information is available in the audited 2020 financial statements, I will refer to the most up-to-date position in the following comments.

NAMA paid €31.8 billion to the banks for the loans it acquired in 2010 and 2011. At that time, the par value of the loans on the banks' books was €74.4 billion, so the sale to NAMA resulted in very large losses for the banks.

NAMA funded the purchase by issuing debt.

In the following years, NAMA implemented a significant programme of disposals of property assets and of loan portfolios, as well as additional lending to certain NAMA debtors where this was likely to generate best returns. As I mentioned previously, NAMA held a much reduced portfolio of loan assets at end-2020 valued at €850 million.

A key objective set by NAMA was to have redeemed all the debt it had issued by 2020. NAMA was significantly ahead of the planned debt repayment profile from 2014 onwards and had repaid 95% of its borrowing by the end of October 2017. All the remaining debt was repaid by March 2020. NAMA covered all of its operating costs and additional lending to NAMA debtors without recourse to any additional borrowing. At the end of 2020, NAMA was projecting it will generate a surplus of €4.25 billion by the time it completes its work. This includes the €2 billion transferred to the Exchequer in 2020.

NAMA has a statutory objective to obtain "the best achievable financial return for the State" but how that return is to be measured is not defined in the NAMA Act. The internal rate of return, IRR, is a standard performance measure for commercial property and other investments. This measure takes account of the amount and timing of receipt of financial returns as compared to the initial investment and other outlays. NAMA's results up to the end of 2018 and its projected future cash flows indicate that its expected overall internal rate of return over the full life of the agency would be around 6.6%. NAMA has not set a target for the internal rate of return on its investment. However, in fixing the prices it paid for the loans it bought, NAMA effectively anticipated an internal rate of return of around 5%. By reference to that benchmark, NAMA is likely to achieve a modestly better return for the State.

In 2014, NAMA adopted a secondary objective relating to the delivery of office accommodation in Dublin. At that stage, NAMA still 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 but this did not include formal targets in respect of the stated objectives. While it was envisaged in the plan that construction on the docklands sites could potentially commence in 2016, no timescale was set for the completion of development. By May 2020, construction was under way, and in some cases had already been completed, on sites accounting for 86% of the land in which NAMA had an interest.

Although NAMA acquired an interest in a substantial number of residential property developments at various stages of completion when it acquired its loans from the banks, the NAMA Act does not explicitly require the agency to engage in the development or delivery of residential units. However, early on, the board adopted the facilitation of the delivery of housing, subject to commercial viability, as a secondary objective. NAMA has sought to deliver residential units for both the social housing and commercial housing markets.

NAMA set a target of delivering 2,000 social housing units by the end of 2015 and this was achieved. By the end of 2018, NAMA had provided a total of 2,445 residential housing units to approved housing bodies or local authorities and an additional 36 units were at contract stage. Of these, 1,352 social housing units had been acquired from NAMA debtors by a NAMA subsidiary, which was leasing the units to approved housing bodies.

In November 2015, NAMA set a target to deliver 20,000 commercial residential units on sites where NAMA had a direct involvement by 2020. By the end of 2018, a total of 7,521 residential units had been delivered on such sites. At that stage, NAMA was forecasting a further 5,750 units would be delivered through similar NAMA-supported commercial developments by 2021, that is, around 13,000 units in total. This would represent delivery of around 65% of the target number of units albeit a year later than originally projected. Between 2011 and 2018, NAMA debtors and receivers had sold sites with the potential to deliver an estimated 63,300 residential units. NAMA reported at the end of 2018 that just 3,525 residential units had been built on those sites. The annual report provides an update on this. The report indicates that sites sold up to the end of March 2021 by NAMA debtors and receivers have the potential to accommodate around 81,000 residential units but that only 6,800 units, or around 8.4% of the estimated capacity, had been delivered to the market by March 2021.

I ask Mr. McDonagh to make his presentation.

Mr. Brendan McDonagh

The committee invited us to discuss NAMA's 2020 financial statements and the Comptroller and Auditor General's special report on the progress of NAMA. I am joined today by the NAMA chairman, Aidan Williams; chief financial officer, Noelle Condon; chief commercial officer, John Collison; and head of strategy and communications, Jamie Bourke.

NAMA last appeared before this committee in October 2020 and since then, despite the various challenges brought about by the Covid-19 pandemic, we have continued to build on the progress outlined in the Comptroller and Auditor General's report. I will briefly discuss some of this progress shortly but first I wish to update the committee on NAMA's cash transfers to the Exchequer.

As members will be aware, we made our first surplus payment of €2 billion in June 2020 and during the first half of 2021, we transferred a further €500 million. I am pleased to announce that just this morning, we made a payment of €250 million to the Exchequer. Another €250 million will be paid in December. Along with almost €400 million paid in corporation tax, this brings our total cash contribution to the State to €3.4 billion by end-2021 - an important financial support at this critical time.

As regards our financial results, 2020 was a difficult year in many respects. While NAMA remained fully operational, planned asset disposals and debtor exits were necessarily delayed by the widespread economic disruption. Additionally, the pandemic had a pronounced effect on our residential delivery programme, which experienced severe delays due to necessary and enduring site closures, impacts to supply chains and enhanced health and safety requirements on sites. Nonetheless, the considerable asset enhancement and preparatory work undertaken by NAMA in previous years meant the agency was in a strong position to weather the storm; while some transactions were behind schedule, their values remained robust. As a result, we reported a profit of €192 million and cash generation of €920 million for 2020.

Our half-year accounts for 2021 will be submitted to the Minister shortly and show continued profitability from our operations bolstered by the very strong return achieved on the disposal of 80% equity in the Poolbeg West SDZ special purpose vehicles, SPVs. Crucially, our strong cash position and profitability have enabled us to increase our lifetime surplus projection by €250 million to €4.25 billion. This surplus, coupled with corporation tax paid of €400 million, brings NAMA's total expected lifetime contribution to the State to €4.65 billion. The board will review this again in the first half of 2022 when our 2021 results are known.

I will turn briefly to the Comptroller and Auditor General's special report, which is the third progress report on NAMA prepared under section 226 of the NAMA Act. The report deals with the period from establishment to end-2018 and it is clear that significant progress was made by NAMA during this period. Our most notable achievement was the early full repayment of our €30.2 billion Government-guaranteed senior debt. As the senior debt was guaranteed by the Irish Government, it created a significant contingent liability for the State. When market conditions began to improve in 2014, the NAMA board resolved to pursue a programme of accelerated deleveraging and early redemption of senior debt which, in turn, helped reduce the funding cost of Ireland's debt. This recovery is of particular benefit now when one considers the significant costs to the State arising from Covid-19 and subsequently the increase in the requirement for State borrowing.

Much progress has also been made on other objectives mentioned in the Comptroller and Auditor General's report. Our work in the Dublin Docklands SDZ, which has had a major transformational impact on the area, is nearing conclusion with 86% of our original interests in the area now completed or sold. In addition, we continue to identify opportunities to provide social housing from our portfolio. Updated figures on both of these objectives are available in the briefing material provided to the committee.

Of course, housing delivery continues to be a major focus of our attention. Since 2014, we have been involved in the delivery of some 20,000 homes, almost 13,000 of which were directly funded and facilitated by the agency. A further 7,600 homes were delivered on sites under the control of the agency at a point in time and benefited from NAMA funding to secure planning permission or for other asset management works.

There has been some uninformed commentary on the number of residential units that NAMA can deliver and has delivered. It is important, in that context, to set out the factual situation regarding the restrictions under which NAMA operates. Firstly, NAMA does not own the development sites in its portfolio; these are owned by our debtors. We cannot force them to act in a manner which may hinder or reduce their repayment capacity. Secondly, we must act in a market-conform way, meaning the agency cannot provide preferential funding terms to its debtors. Thirdly, many of the sites in our portfolio are simply not suitable for residential development at present, owing to a lack of appropriate planning or zoning or essential infrastructure and services such as water, roads, sewerage or utilities. Fourthly, the growth in property values has allowed a number of NAMA debtors to refinance their debt and exit NAMA with their considerable land banks. These sites will be developed with funding from their new lenders. Finally, the issue of commercial viability is key. Under our legislation, this is the most important and relevant criterion for funding of residential development. This basically means that NAMA can finance only developments that we expect will yield a profit. This is an important demonstration that we are in compliance with EU state aid rules.

Commercial viability is becoming more challenging across the sector. Even sites that have planning permission in place are currently not viable to build on, especially apartments. Soaring construction costs coupled with pandemic-related delays and labour shortages are all putting upward pressure on the cost of delivering housing in Ireland. The Government's recent Housing for All plan will seek to address some of these issues currently hindering supply and affordability; however, NAMA must continue to operate under the constraints I have just outlined.

Figure 1 in my written submission illustrates NAMA's delivery potential based on the viability and profile of the remaining sites with planning permission in our portfolio. Delivery of the 2,400 units under the first two rows, (a) and (b), where it is indicated that funding is approved or under consideration, will be extremely challenging. Our objective is to make the sites under (d) and (e) as shovel-ready as possible by achieving planning before disposal. The sites under row (f) will likely become available only post 2025, but it is important to asset-manage them between now and then by trying to resolve infrastructure, zoning and, ultimately, planning.

There has also been some commentary to the effect that NAMA should not permit the sale of residential developments to funds and that, instead, any sales should be restricted to individual buyers. The reality is that we have to operate to the clear and unequivocal mandate set for us by the Oireachtas. Under the NAMA legislation, we are obliged to get the best price; we could not have limited the field of potential buyers or refused to sell to funds if the effect of doing so was to reduce the return. Furthermore, the absence of such funds committing capital to purchase developments would simply mean that certain residential projects would not be viable and otherwise never built. In any event, the vast majority of NAMA-funded newly built residential units are sold to individual purchasers, many of them first-time buyers.

From our perspective, the key takeaway from NAMA's residential delivery programme is that it has resulted in the supply of more than 20,000 new residential units in Ireland, whether owner-occupied, rented or used for social housing. These are homes that exist primarily because of our contribution at various stages of the delivery process. I assure the committee that NAMA will do its utmost to add effectively to this supply as much as possible before we conclude our work in 2025.

Thank you, Mr. McDonagh. The lead speaker from the committee this morning is Deputy Sherlock. You have 15 minutes, Deputy Sherlock, and I will give you a reminder after 12 minutes.

I will start with the Dublin docklands SDZ. My understanding of this is that in 2014 NAMA adopted a secondary objective of the facilitation of the development of office accommodation in Dublin and had an interest in 17 ha of the 22 ha of the undeveloped land in the Dublin docklands SDZ. My understanding is that Mr. McDonagh's board approved a business plan for those sites in September 2014 and that there were no formal targets set out in that business plan. I also understand that by the end of 2018 construction was under way or had been completed on 70% of the land in which NAMA had an interest and that by May 2020 construction was under way or had been completed on sites accounting for 86% of the land in which NAMA had an interest. Regarding the commercial development of the Dublin docklands SDZ, can Mr. McDonagh confirm for me what percentage of the NAMA land has seen full construction to date?

Mr. Brendan McDonagh

For the docklands site, I can give the Deputy a breakdown of the whole amount. Of the sites in which we had an interest in 2014, 38% were sold with planning permission. That covers 1.57 million sq. ft of commercial space and planning for over 1,400 units. Some 42% has construction completed and sold. That is 1.74 million sq. ft of commercial space and 458 commercial units. There is 6% with construction complete, which is for about 270,000 sq. ft and 30 social housing units, which are currently being handed over to Dublin City Council, DCC. That is up to 86% of the land in which NAMA had an interest, as the Comptroller and Auditor General mentioned and as I mentioned in my statement. Some 14% is currently under construction, and we expect and hope that construction to be 100% complete, subject to no further delays, by the end of quarter 1 of next year.

May I hear Mr. McDonagh's understanding of the impact of Covid on commercial developments? We now know that more people will be working from home and that fewer people will be required to inhabit, if you will, commercial developments. Can Mr. McDonagh give me an insight into NAMA's thinking in respect of the future of commercial developments, such as the Dublin docklands SDZ in particular, in the context of the impact of Covid on commercial space into the future? What I am getting at is whether there will be a need to pivot back to residential. That is ultimately what I am trying to figure out.

Mr. Brendan McDonagh

Yes, I understand the Deputy's question. Obviously, since the lockdown in March 2020, there has not been very much demand for commercial office space. That is the reality. Any agent will tell you that. From our perspective, we are fortunate enough that any of the stuff we have left in our portfolio is quite small in the context of the 4.2 million sq. ft. In one particular building which we have pre-sold, there is about 70,000 sq. ft remaining at €170,000. In another building in which we are involved, a joint venture which is currently being built, there is about 70,000 sq. ft which is currently under construction and which probably will not complete until, say, quarter 1 of next year. In that context, we are very fortunate that we have a very limited exposure. We do not have 100% exposure because, effectively, there is the involvement of joint venture partners.

As for demand for office space, a lot will depend on how we all begin to handle Covid. Do we begin to return to offices? Will there be development of the hybrid working model? As for the demand that is out there, what we are seeing on the ground is that everybody is sitting on their hands - and you cannot really blame them - until they know whether this Covid thing is under control and how many people will be coming back to the office. The reality of Covid is that it probably brought forward the inevitable that remote working would become a reality by probably ten years. It forced companies overnight to have people working from home. The advent of technology, which has worked very well, meant that people could get on and do their jobs quite well, so there will inevitably be less demand for office space. If I were sitting in NAMA's offices in 2014 and 2015 looking at the docklands, which were not yet developed, and if Covid had happened then, that would certainly be a big concern. Thankfully, however, we are at the tail end of it, as far as we are concerned, and we have very little exposure left, which is a good thing for the taxpayer.

We understand NAMA's remit and the legislation, but there is the potential for 3,500 residential units at the Poolbeg West site.

That is clearly understood. We know that there is about 93,000 sq. m of commercial development. Will Mr. McDonagh talk me through where Poolbeg is at present? My questions are specific. Has a preferred bidder been identified for NAMA's venture partner in the old glass bottle site at Poolbeg West? At what stage of development is the Poolbeg West SDZ? What impact has Covid had on the development of Poolbeg? What impact, if any, have increased construction costs had on the budget for the development of Poolbeg West? On the 3,5000 residential units, it would be useful to have a breakdown or understanding of how that will be divided between social, affordable and commercial development. If social houses are to be developed on the site, what will the ownership structure of the land be? Will it be leased? Will it be used by approved housing agencies? I ask Mr. McDonagh to give a more in-depth analysis of the Poolbeg site.

Mr. Brendan McDonagh

The Poolbeg West strategic development zone is a site of 38 acres but only 20 acres are permitted to be developed under the planning permission, so 18 acres will be used for amenity purposes. We have selected a preferred bidder. We ran an open market process that started in July 2019 and concluded in July 2021. We sold 80% of our interest in that to a consortium involving Oaktree, an affiliated entity to Oaktree called Lioncor, and the Ronan Group. On the state of development, the site has planning permission for 3,500 units and 1 million sq. ft. of commercial office space. The consortium that bought it is determined to develop this site as quickly as possible. In accordance with planning permission, it will be done on a staged basis. Certain other infrastructure has to go into the site before the full site can be developed and that will have to be worked out with Dublin City Council. Within weeks of acquiring 80% of our interest in July, the consortium already submitted a planning application for the first 600 residential units in that portfolio. It is actively working on a further planning application which it is hoped that it will submit in early 2022.

As part of the conditions set out in the planning applications by An Bord Pleanála for the strategic development zone, 25% has to be set aside for social and affordable housing, including 10% social and 15% affordable. This is from before the Affordable Housing Act. The consortium, as part of the initial 600 applications, has made provision for 25% being social and affordable. It is abiding by the obligation, which we are glad to see. The 10% Part V social housing is an obligation for every site. There are mechanisms set out for how that will be priced by every local authority in the country. An Bord Pleanála stated in its conditions in 2019 that the 15% affordable housing would have to be done in the form of a commercial arrangement. That commercial arrangement is under discussion between Dublin City Council, the Department of Housing, Local Government and Heritage, and the consortium, which is led by Oaktree. That is under way and nothing can be built there until that is resolved and planning permission comes through. I hope it will come through soon.

I will address my comments to Mr. McDonagh. I will try to keep them short and would appreciate succinct replies. I want to make a quick comment before I do that. I have an issue with the word "profit". I accept that NAMA paid €31.8 billion for what it is dealing with but the par value for these liabilities was €74.4 billion. I think "surplus" is the correct word rather than "profit". On the costs of administration, does Mr. McDonagh have a complete list of the legal suppliers? In the early stages, there would have been people valuing assets, while at the later stage, it would be predominantly legal fees. There does not appear to be a complete list of the amounts paid out in legal fees. Under the public service code of governance, NAMA is only required to provide settlement costs after 2017. Is there any reason NAMA would not supply that figure retrospectively, going right back, since it is not available from 2016 onwards?

Mr. Brendan McDonagh

I think we have answered that question before in parliamentary questions. We have that information readily available and we can provide it to the committee. There is no issue with that. It covers 2010 up to 2020.

If NAMA would provide that and the total amount paid out, by supplier, that would be useful.

The Comptroller and Auditor General stated that the National Asset Management Agency Act does not define how the disposal value is measured. Why did NAMA not use the industry standard? Why did it deviate from that? Who decided to do that?

Mr. Brendan McDonagh

The Comptroller and Auditor General said that there is no measure in the National Asset Management Agency Act of how to get the best achievable financial return but unfortunately that is not fully correct. Section 10 of the Act states that the return should be measured by reference to the price paid for it, the costs incurred and any other matter that NAMA deems relevant. As the Comptroller and Auditor General pointed out and as is included in our report, the expected return on a portfolio when we acquired it, which was determined by the European Commission, was set at a 5% discount rate, which is effectively an internal rate of return. We are ahead of that, at somewhere in excess of 6%. It is important to say that that is over 1% ahead per annum.

If the internal rate of return is the standard metric for property-related investments, why did NAMA deem it appropriate to use an alternative measurement?

Mr. Brendan McDonagh

The board determined that we would use an alternative measurement because when you measure the return, as the Comptroller and Auditor General outlined, it takes account of the cost paid for the portfolio. Looking at it from NAMA's perspective, we had to pay almost €5.6 billion more than what the market would pay for it, which was determined by the European Commission and was state aid to the banks. If somebody else had bought it, the banks would have been paid €5.6 billion less. The board decided that we needed to take account of the fact that we overpaid by €5.6 billion on day one.

We are in the middle of a housing crisis that did not happen overnight. It has been building since 2014.

There was a lot of criticism. I was one of the people criticising the early disposal of some of the assets. If they were retained for a little bit longer, they may well have delivered a better outcome. If we look back, there are some that we could point to where that would certainly be the case. Mr. McDonagh says in his statement that the growth in property values has allowed a number of NAMA debtors to refinance their debt. I accept that there was an environment wherein paying down the national debt was considered important. When we look at the housing crisis now, in terms of NAMA's involvement, Mr. McDonagh is counting in a sizeable number of houses that have been delivered that are not directly related to NAMA, as it was the commercial sector that delivered them. Why is he counting them in as part of his direct involvement in delivering them? It is still below the target set by NAMA. Why is that the case when there is such a crisis at the moment?

Mr. Brendan McDonagh

The important point is that there are more than 20,000 units delivered at a time when there is a severe housing crisis. I totally agree with the Deputy on that. From our point of view, a number of debtors came into NAMA who had a land bank but no funding available. We provided funding to them to get planning permission, put in infrastructure and helped to make the land ready for building. If we go back to 2015, when the board looked at the business plan for the residential programme, at that stage we had debtors in our portfolio that included a large number of housebuilders with the potential to deliver approximately 17,000 units. Not all of them had planning permission at that stage, but some of them were due to get planning permission.

Why is Mr. McDonagh counting in the way he has outlined? It looks like he is bigging up what NAMA has delivered directly.

Mr. Brendan McDonagh

No, I do not accept that at all. We were very clear with the Minister for Finance in 2015 that there were only about 14,000 units in the portfolio which we thought were commercially viable at that stage and others could become commercially viable in the future. A number of debtors who were with us paid off all the debt they owed to the taxpayer, left NAMA and brought their considerable land bank with them of potentially 9,000 units that could be delivered. If they paid off their debt to the taxpayer and went elsewhere, then their values improved because of the support from NAMA while they were with us, as we helped them to get planning permission and put the infrastructure in place to get sites shovel-ready. Therefore, those units that we count in as direct would never have happened without the work we put in in the early years while these debtors had nowhere to go, and they needed our support to stay in business. They eventually paid off all the debt they owed to the taxpayer. That is an important consideration.

The 12,700 units NAMA has delivered to date represent approximately 63% of its own target. Why has NAMA fallen so far short of its target?

Mr. Brendan McDonagh

The reality is that a number of housebuilders who were with us paid off their debt and brought their portfolio elsewhere. We do not build houses directly; we build houses by working with our debtors and if they pay off their debt then they move their portfolio elsewhere. We cannot hold them against their will. Once they pay off their debt, they have done right by the taxpayer and they can move elsewhere, but while they are with us, we give them considerable support to make the land more valuable and shovel-ready. That is the important point.

Finally, I wish to ask Mr. McDonagh about the wind-down of NAMA, which must provide a report to the Minister by the end of the year. I presume Mr. McDonagh will have that available. Does that include how leases will be dealt with? Will it include, for example, how the wind-down will happen from the point of view of the administration? Will bonuses, incentives, or anything like that be included? What is the plan of action?

Mr. Brendan McDonagh

The board is working on the wind-down of NAMA at present. We will submit the report to the Minister within the next month or so. We expect that the report will ultimately be published by the Minister if he accepts it. We will plan each year from 2022 to 2025 for how the portfolio is going to decrease, how we are going to decrease staff numbers and how we are going to deal with the residual portfolio and try to enhance value on it. We will cover all the aspects the Deputy would expect in any wind-down plan.

The board is very clear, as I am, that 2025 is it and NAMA is not going to go on past 2025, but there is still some considerable value to be unlocked between 2022 and 2025 on our residual portfolio, which will add to the expected surplus we mentioned earlier.

Are there incentives or bonuses?

Mr. Brendan McDonagh

NAMA operates in the public sector space. Very modest amounts were paid in performance-related pay in 2019. Nothing was paid in 2020. The people who work in NAMA were part of the National Treasury Management Agency, NTMA, and are fully knowledgeable about the situation the country is in, and the NAMA board members are also very cognisant of that.

I apologise for being a bit late arriving. Was it 2,445 houses in total that were delivered to councils or approved housing bodies by 2018 or did NAMA only provide around 500 between 2015 and 2018?

Mr. Brendan McDonagh

As of today, as stated in the briefing pack we sent to the committee, we have delivered 2,629 houses. The original target was to deliver 2,000 units so we are now 600 units ahead of the target.

NAMA is ahead of that. Is it true that more than half of the houses were social housing acquired from NAMA debtors, who were leasing to approved housing bodies?

Mr. Brendan McDonagh

Yes. The entire 2,629 were all acquired from NAMA debtors. Some 1,376 are part of the National Asset Residential Property Services, NARPS, a vehicle we set up, which will now transfer to the Land Development Agency, LDA, under the Housing for All strategy. We put them on our balance sheet. They are leased to approved housing bodies, AHBs, and they will transfer to the LDA.

Am I correct in saying that, in reality, rather than delivering 2,500 social houses, NAMA facilitated 1,300 houses to remain as social housing and then brought a further 1,200 into the market?

Mr. Brendan McDonagh

I will not say they were brought into the market; they were all provided for social housing. Of the 2,600, the local authorities and the AHBs bought around 1,300 of them. They own them on their own balance sheet and then approximately another 1,300 are in a vehicle that involves long-term leases between NARPS and the approved housing body. They are all for social housing.

Accepting that it was a secondary goal, having spent the best part of €40 billion bringing the 1,200 homes into the social housing stock over six or seven years, does Mr. McDonagh not think that is a bit underwhelming?

Mr. Brendan McDonagh

In terms of our portfolio, what we had was units that we acquired which were built or half-built, and we had to finish them out. We offered more than 7,000 units to the local authorities and AHBs and they could only confirm demand for 2,600 of them. We offered as much as we could within our portfolio. It has been well documented that by the time they came back and made a decision, about 2,000 of those units had already been sold by the debtors because there was a demand for them in some areas, but the AHBs, the Housing Agency and the local authorities rejected a further 2,500 for their own reasons.

I imagine it was a funding issue from the perspective of the local authorities. They were trying to get the funding to purchase the houses.

I will move on to the commercial residential targets. In 2015, NAMA set a target of 20,000 units and by the end of 2018 the delivery date was changed to the end of 2021 and the target was revised down by a third.

What happened in the intervening period to cause that?

Mr. Brendan McDonagh

As I told Deputy Catherine Murphy, we are on record with the then Minister for Finance as saying that, when we drew up the plan in 2015, we believed only 14,000 units were commercially viable and we would do our best to make the other 6,000 in the portfolio commercially viable. However, NAMA's is a live portfolio. We continued to sell land but also a number of our debtors, due to improving values, paid off their debts to NAMA and took the land banks with them. They then were no longer beholden to NAMA and, therefore, we no longer had those builders and their lands, as they had paid off their debts. We cannot produce something if we do not have people with us because they have paid off their debts and moved on.

How many have been delivered to date? What was NAMA's projection?

Mr. Brendan McDonagh

Our projection was for us to have delivered somewhere between 11,000 and 12,000 units directly and approximately 8,000 through builders who were in NAMA at one stage but have since left.

It is my understanding that NAMA sold sites that had the capacity for up to 81,000 units. It has only brought 6,800 to the market. Will Mr. McDonagh give the committee some insight into NAMA's thinking on this?

Mr. Brendan McDonagh

It is important to say that the land was sold by our debtors' receivers and that some of it did not have planning permission. To say that it had the potential for 81,000 units would mean that all of it would have got planning permission. It is effectively a notional figure. Once the land is sold, it is in the hands of new owners, who have to decide whether they will build on it. Probably between 8,000 and 9,000 units have been built on that land.

Housing for All will see 1,400 homes transferred from NAMA to other State bodies but that seems paltry on NAMA's part, given the potential for 81,000. How was the figure of 1,400 arrived at?

Mr. McDonagh might answer briefly, as we have gone over time.

Did the Minister ask how many NAMA could provide or did he ask for 1,400 or another amount specifically?

Mr. Brendan McDonagh

No. At the end of the day, we had to sell down assets in our portfolio to generate cash to pay off the debt, as debt is a contingent liability. A number of debtors paid off their full contractual debts and brought their land banks with them. Good luck to them, as they have done the right thing. The Minister did not set any target. We said that we would deliver as many as we could out of what was available in our portfolio but once the land is sold, the new owner has to decide what he or she will do with it. Some of that land does not have planning permission or zoning. That is not to say that it will not be developed in future, but-----

Did the Minister ask NAMA how many it could provide?

Mr. Brendan McDonagh

Yes. In 2012, the then housing Minister asked us what we could deliver. We agreed that we would deliver 2,000 social housing units in private houses, let us call them, which was effectively the 2015 plan. In 2015, we told the Minister that we would deliver 14,000 units and he told us that he wanted 20,000. That was the target set for us but it was fully in the knowledge that things could change, the portfolio was dynamic, we would deliver as much as we could and debtors could exit, after which we could not control what they did with the land.

I welcome the witnesses. I will have to head away after this as I must return to the Chamber. I thank Mr. McDonagh and the Comptroller and Auditor General for their opening statements.

I will ask a few brief questions. Mr. McDonagh has highlighted that NAMA does not own the development sites in its portfolio and that they are instead owned by the debtors, which is straightforward enough. How many of the sites that were in the guardianship of NAMA, as it were, had full planning permission? Does Mr. McDonagh have that figure to hand?

Mr. Brendan McDonagh

I do not, but we can-----

Mr. Brendan McDonagh

Since 2015, we have supported debtors in getting planning permission for more than 15,500 sites.

If a debtor did not maintain or extend the planning permission for one of those sites, the value of that asset would have depreciated significantly. Did NAMA encourage debtors to extend or maintain their planning permissions?

Mr. Brendan McDonagh

Absolutely. We have an in-house planning team and this is one of the elements we actively monitor to ensure that planning permission is extended, if possible. In most cases, the debtors worked with us and achieved that. In a small number of cases, though, planning permissions were not extended but that was because the relevant local authorities decided that the lands were no longer pertinent to their county development plans.

This follows on from my questioning when NAMA was before the committee last year. I want to know whether there has been active management of those portfolios, given that we, as the taxpayers, want to ensure that we get the most value out of them. Is Mr. McDonagh telling us that his team actively encouraged and supported the extension of those planning permissions?

Mr. Brendan McDonagh

Absolutely. It is in NAMA's interests as well as the taxpayers' that the value of sites be maintained or enhanced.

Yes. Mr. McDonagh specifically referenced the Dublin docklands. Was the figure he cited 86%?

Mr. Brendan McDonagh

Yes.

Is that the figure for completions in the SDZ?

Mr. Brendan McDonagh

In terms of our interests, yes. We hope that the final 14% will be completed by the end of quarter 1 of next year.

Is that on track?

Mr. Brendan McDonagh

Yes. Contractors are experiencing a labour shortage and delays in getting materials but those difficulties are affecting every construction site in the country and everyone is trying to grapple with them.

How does that figure compare to the Poolbeg West SDZ, which had a much later start than the Dublin docklands?

Mr. Brendan McDonagh

In terms of Poolbeg west, new owners have come in and effectively own 80% of it. They are active in moving it on. Planning permission has been received for approximately 3,500 units, although some people say it could cover 3,800 units, and 1 million sq. ft. Within seven weeks of the new owners acquiring an 80% interest, they submitted a planning application for the first 600 residential units. That application is now with Dublin City Council. A request for further information has been issued by the council in recent weeks, which we anticipate will be responded to within the next six weeks.

The Deputy has one minute remaining.

I presume I have a few minutes, Chairman. Will Mr. McDonagh touch on the wind-down? He referenced the strategic plan from 2022 to 2025. What does it entail? He might talk the committee through it. The next time we speak, NAMA will probably be in the throes of that plan.

Mr. Brendan McDonagh

In simple terms, as we sit here today, NAMA has a €2 billion balance sheet, which we want to get down to zero by 2025. We are planning on doing that by disposing of the remaining assets but also by managing them to improve their value. Some of them are valuable land banks. Of the remaining portfolio, 81% is in Dublin, most of which is contained in the second largest and the fastest growing local authority area in the country, namely, Fingal. We have considerable land interests there and we believe they have the potential to deliver many thousands of residential units, but that has to be worked within the context of the Fingal development plan.

We have quite a large land bank in Kildare as well. They are very strategic assets. In effect, we are working out how much each year we will be able to generate from the portfolio to get that to zero. We also calculate how many staff we need each year. We have just completed this year's redundancy programme, and we will be down to 113 people. By the time we get to 2025 and are closing the doors, that will be down to zero.

There are many moving parts in this. An element of the board's consideration going to the Minister now is one of the most important parts. We have said we can deliver €4.65 billion to the taxpayer. As part of the working out of the remaining portfolio between 2022 and 2025, we have done much anticipatory work. I hope we can add to the €4.65 billion by the time we complete in 2025. That is very important.

The Deputy is over his time but I can let him back in later.

The witness mentioned Fingal and Kildare.

The Deputy is well over his time. I can let him back in on the next round of questions.

I thank the witnesses for being here. I will follow up some of the questions asked by Deputy Munster. It was stated that 7,093 residential properties were identified by NAMA that would be of potential use for social housing. What was the total number of residential properties in the portfolio? In other words, what was the number of which the 7,000-odd properties was a portion?

Mr. Brendan McDonagh

The portfolio we acquired consisted of completed stock and stock yet to be completed. Some properties were in the middle of being built when we acquired the portfolio. The potential portfolio was somewhere between 16,000 and 17,000 units.

Okay. Of that, 4,359 are no longer under consideration. It was indicated that a little under 1,900 were sold to either an approved housing body or a local authority getting its act together, for want of a better term. Approximately 2,500 were deemed unsuitable or as being low demand but I am interested in finding out the part of our country that had no demand for social housing. Will the witness give a sense of why properties might have been deemed unsuitable?

Mr. Brendan McDonagh

For me, all properties offered by NAMA would have been suitable. The history has been that we would bring them to standard before handing them over as social housing. If there is money for investment, we would have done it. The feedback we got was that they were the wrong product type and sometimes local authorities said they were in the wrong location. We were dealing with local authorities through the Housing Agency, which co-ordinated the process. The feedback from the Housing Agency was that many local authorities had the view that they had sufficient levels of social housing in many of the areas in which we were offering properties.

There was a sort of generic response we used to hear quite often where if an estate already had 20% social housing and we offered additional units, the authority would indicate that its own rules dictated that once 20% was reached, it did not want to take more units in the estate. That was not our decision but rather the decision of the Housing Agency and local authority.

Considering the crisis we are in now, it appears that such a decision warrants further investigation. Of the 7,000 properties identified by NAMA - and some might argue that this figure is too low - it seems 4,500 were not considered in any great way.

It was indicated that 2,629 properties were delivered for social units and that a little under 1,400 were social houses to begin with, either through leasing or other programmes. The additional social housing stock delivered through NAMA is at a very low level and unsatisfactory. Mr. McDonagh is indicating that there appears to be an issue with the Housing Agency and local authorities in delivering what could have been 4,000 other properties.

Deputy Munster asked about the 1,400 units identified in Housing for All. It is not clear from where that figure emerged. Are we talking about 1,400 additional units that are not included in the 7,093 units? Are we talking about houses that were previously under consideration that are now being brought under consideration? Are we just wrapping existing figures into a new figure for Housing for All?

Mr. Brendan McDonagh

The close to 1,400 units are those which we already own and leased to approved housing bodies by the National Asset Residential Property Service, NARPS. That is my understanding. They are already occupied by people on the social housing list.

Is the witness saying that when Housing for All indicates 1,400 homes will be delivered via NAMA, it is actually pointing to homes already in the social housing stock?

Mr. Brendan McDonagh

That is my understanding because there are very few mentions of NAMA in Housing for All.

There is one and this is it.

Mr. Brendan McDonagh

It mentions NARPS, which has almost 1,400 units already leased to approved housing bodies and people are occupying them, and that will transfer to the Land Development Agency. I stand to be corrected but I must presume these are the units are already leased and occupied by people.

I have a final and very brief question. Am I right in saying that with the 2,629 units - there may be an additional 100 - NAMA is providing no more social houses?

Mr. Brendan McDonagh

That is not true because, effectively, as part of any of the sites we continue to fund - I indicated in my opening statement there are approximately 2,400 units - there are approximately 1,300 units where we have provided funding and they are under construction. Some are about to start. There are another 1,100 that we think we will fund. Out of the 2,400 units, there will be Part V units delivered.

No, the Part V element relates to the legislative requirements for developers. I am talking about NAMA providing additional social housing directly to the State.

Mr. Brendan McDonagh

We do not have any more in our portfolio. Effectively, they are all disposed of at this stage.

I can let the Deputy back in on the second round. Deputy Colm Burke is in the Chamber but I hope he can join us soon.

Go ahead in that case.

I missed some of the replies earlier so I am not sure whether the matter I wish to raise has been dealt with. It concerns the land sold for residential units. It was estimated 63,300 units could be built on the land that was sold. Was it ever considered that this land could have been sold by way of a licensing system, with certain conditions that particular targets would be reached? On the one hand it is great to be able to sell land for commercial development and the creation of jobs but part of the creation of jobs must be the creation of the appropriate level of residential accommodation. It appears there was not joined-up thinking in the way this was thought out. Was that option considered at any stage?

Mr. Brendan McDonagh

We already have a number of licence agreements in which we have done exactly as the Deputy describes. Debtors or receivers had land under their control and had licensing arrangements with people. Where smaller builders were not paid the full amount up front, they would pay a site fine every time a house was built and a certain amount of the proceeds would come back. That has worked and it certainly was under consideration.

It is important to consider that a number of debtors who took that considerable land bank paid their full debt to the taxpayer. It was like having a mortgage on a house and if a person pays that mortgage, it belongs to that person and he or she can do whatever they want.

They would have brought a considerable land bank with them when they paid off their debt to NAMA. Some land bank would have gone on loan sales, whereby we sold a number of packages to a number of debtors. We sold their loans and they bought the security for those mortgages with it.

We have all constantly looked at the portfolio to determine the maximum we could deliver from it. The reality was that when looking at our land bank, there was no real interest, by and large, expressed in it by approved housing bodies or local authorities. They bought bits and pieces here and there across the portfolio but what they were interested in was completed units. We offered up 7,000 completed or soon-to-be-completed units but, as I said, just over 2,600 were taken up. We certainly gave this a lot of consideration.

When NAMA was selling a portfolio of properties, was it right to put potential residential development in with commercial elements where there was no commitment? The focus may very well have been on the entire package but the real focus was on the commercial element, not the residential element. As a result, was there not a huge delay in progressing the development of residential property?

Mr. Brendan McDonagh

No. A debtor in NAMA might have had built houses, partly built houses and an office that he built as part of the portfolio. He might also have had a land bank. If that debtor was exiting NAMA - let us say he owed 100 and the value of his assets was 150 - his security was released once he paid off the 100. He would not have been happy to leave behind his land bank because he was going to survive in the future by building on it. As everybody understands, and as has been debated at meetings of this committee in previous times, one of the big issues with people who borrowed from the banks at the time was that they borrowed in a personal capacity. It is very hard to split the portfolio. Also, the debt was cross-collateralised across all the assets in the portfolio so it is very hard to split up or carve out assets unless there is the debtor’s agreement.

There were individual residential sites sold off. I can even give an example. The site was being sold and an agreement had been reached. A builder wanted to go in and build but the property was taken off the market. There was a further three-year delay before anything happened with the site. I was dealing with the matter personally in a legal capacity.

Mr. Brendan McDonagh

The Deputy will know from his legal background that sometimes when one tries to sell assets, one needs the co-operation of the debtor. Sometimes debtor issues arise whereby something goes into legal dispute and the asset has to go into abeyance until the issues are resolved. Nothing is ever straightforward dealing with a debtor in terms of the various elements involved.

Looking at the delay in the turnover or progression of residential property, does Mr. McDonagh believe, with the benefit of hindsight, that we could have done a better job at managing land zoned for residential development to make sure certain targets could be reached in regard to it?

Mr. Brendan McDonagh

Every piece of land in respect of which we thought we could work with a debtor or receiver to have it developed if it made commercial sense, we would have funded it. We had no constraint on that. We had plenty of money to do it. We did our best to try to develop every site where we could get the full co-operation and agreement of all the parties. There were other constraints in that we had to generate cash to pay down the debt because the contingent liability was weighing heavy on the State. The Minister was very clear in this regard. We wanted the contingent liability extinguished so it would not be weighing on the ability of the NTMA to raise debt on the markets. That was the big issue.

I have a question on a matter that interests me. Why does NAMA have 8,025 residential units, built on sites outside its control, that are included in the agency’s residential development target?

Mr. Brendan McDonagh

The reality was that when the debtors came into NAMA in 2010, and when the land bank came into NAMA, we supported the debtors with that land. This was in the period between 2010 and what was ultimately their exit. We funded planning permissions. We funded infrastructure. When the debtors exited NAMA, by one means or another, they built on the sites. They would never have been shovel ready without NAMA support. Therefore, if we had done nothing with the land and offered support before the debtors left NAMA, many of the 8,000 sites would never have been built on, even today.

Does NAMA have any control over the pricing structure for the residential units? What prices are they being delivered at?

Mr. Brendan McDonagh

Residential units are delivered at whatever price the person wants to sell them at in terms of the market value. Before I came here today, I looked at Glenveagh Properties, Cairn Homes and the NAMA debtors in our portfolio and noted that the prices per unit across all three - which we could say are the three biggest contributors to housing in this State - are very close together, the average being just over €300,000. It depends on the market value in the particular area. Obviously, the sale price in some areas is less than that in others, but the prices are all at market value.

Is that at today’s price?

Mr. Brendan McDonagh

Yes.

I want to ask a question on the consultancy costs, which seem to have increased exponentially. Note 13.11 on page 53 of the report states that the consultancy cost in 2019 was €800,000 and that it was €1.7 million in 2020, which is an increase of 94%. Can Mr. McDonagh explain that?

Mr. Brendan McDonagh

What page is that?

Mr. Brendan McDonagh

I have got a different page 53.

You may have as I have printed my copy. I am referring to the special report.

Mr. Brendan McDonagh

The special report. I apologise as I was looking at my own report.

Mr. Seamus McCarthy

I think it may be the analysis of expenditure. That is on page 43.

I am sorry; it is page 43. Excuse me. Effectively, it states the main increase constituted legal fees.

Mr. Brendan McDonagh

Yes. We incurred considerable legal fees since 2017 in dealing with the commission of investigation. That is ongoing. We had a lot of litigation over the years. A couple of years ago, we had almost 100 cases of litigation. Thankfully, today, we are down to 34, which is approximately one third of the number of cases we had a number of years ago. Litigation is a factor that we cannot control. If we feel people can pay, we will pursue them to get the money off them. About half of litigation costs involve litigation against NAMA, however.

Does Mr McDonagh expect the figure to increase again?

Mr. Brendan McDonagh

No. We have active management in terms of our litigation and wind-down. We are trying to settle the litigation as quickly as we can. Sometimes it is outside our control. As I said, 50% of our litigation cases are taken by parties against NAMA. This is outside our control. We are trying to work through them.

Mr. McDonagh mentioned the wind-down. As the extension is now to 2025, have bonuses been paid to the executive or to Mr. McDonagh, as CEO, in regard to the extension to stay on?

Mr. Brendan McDonagh

No. I have not taken a bonus in terms of NAMA since it started. As I said to the Deputy's colleague earlier, a modest number of bonuses were paid to a limited number of people in 2019. There were no bonuses paid in 2020. Where people have particular skill sets, we may pay them, but we, and the board, are also mindful of the economic conditions. We only pay bonuses where we feel it is absolutely necessary. They are quite modest.

I appreciate that and that is fair enough.

The Deputy's time is up. She may have a further brief question.

I thank the Chairman and Mr. McDonagh.

I will let her back in again if she wants to come back in. If Deputies wish to come back in, they should raise their hands if they are not in the committee room. Deputy Dillon has five minutes.

I thank the Chairman and welcome the NAMA officials. My first question is to Mr. McDonagh. Will he please outline to the committee whether there have been any discussions between NAMA, in its wind-down operations, and the LDA? What discussions have taken place to date?

Mr. Brendan McDonagh

Our main interaction with the LDA is around the transfer of National Asset Residential Property Services, NARPS, which is the social housing vehicle. It has just over 1,370 units. We got a direction from the Minister in 2019 that it would transfer to another State body. In Housing for All it was decided that State body would be the LDA so we have been engaging extensively with it on arranging the transfer of that, which we hope will happen by the end of the year or by quarter 1 of 2022.

How much social housing is NAMA looking to transfer to the LDA?

Mr. Brendan McDonagh

Just over 1,370 units as part of that are social housing.

What is their value?

Mr. Brendan McDonagh

It is about €300 million.

Where are these 1,300 homes under NARPS located?

Mr. Brendan McDonagh

They are located across a number of local authorities throughout the country. I do not have the page in front of me now but I think we have previously outlined it in our annual reports. We can provide it to the committee by county. There is no issue with that. I think we have published it before for parliamentary questions or whatever. We will send it to the committee and the Deputy himself. There is no problem with that.

On the exercise of options to purchase shares, for the benefit of the committee, will Mr. McDonagh explain the reason behind the purchase of the remaining 51 shareholdings in NAMA's investment from private investors?

Mr. Brendan McDonagh

When NAMA was set up in 2009, there was a big concern that because the country did not have the money to buy the assets - the loans - off the banks, NAMA would have to issue Government-guaranteed IOUs to the banks to pay for them it would be on-balance sheet for EUROSTAT reporting purposes. As it happened at the time, France got an exemption because it set up a vehicle with majority private ownership but which was effectively state-controlled. It got an assets vehicle it used for dealing with the banking crisis off-balance sheet. We saw that and we worked with the Central Statistics Office, CSO, and applied to EUROSTAT and the Department of Finance to see if we could set up a similar vehicle in Ireland with majority private ownership but over which NAMA or the Minister effectively had a veto and so effectively it was State-controlled, similar to the French one, and if we could then get it off-balance sheet. They agreed we could, so when NAMA was set up originally it was capitalised with €100 million. Of that, €49 million was provided the Minister for Finance and €51 million was got from a number of pension fund managers here in Dublin, and effectively all they were entitled to was a dividend and their capital being returned to them once NAMA had paid off all its debts.

In 2020, as we had paid off all our debts, the Minister wanted a surplus out of NAMA. For us to get the surplus out of NAMA, we had to pay off the private investors. It was always intended we would pay them off. They were capped in terms of their return. For the €51 million they put in, they got €5 million in return for leaving their capital with us for as long as ten years and they got €56 million back. Once we paid back the €56 million after paying off all our debts, we could pay the €2 billion surplus or start paying our surplus, which was initially €2 billion, over to the Minister in 2020. It was purely a mechanism to keep NAMA off-balance sheet for EUROSTAT reporting purposes.

Just so I am clear, did that repurchasing of these private investors' shareholdings allow NAMA to make the transfer of the first tranche of the terminal surplus?

Mr. Brendan McDonagh

Yes, that is correct. We could not have paid the €2 billion while the private investors were there, so we had to take them off the pitch, if I can put it that way.

Deputy McAuliffe is as láthair as well and Deputy Carroll MacNeill has not joined us yet but may later. I have a few questions for Mr. McDonagh myself.

On the overall performance of NAMA, the €74.4 billion was the par value of the loans at the point when the agency acquired them. It got them at a 60% or 57% discount and €31.8 billion was the cost in public money. Mr. McDonagh outlined this morning that NAMA will achieve a surplus of €4.2 billion plus about €400 million in tax, and that is it. The mandate obviously is to try to achieve commercially the best return for the taxpayer there. The agency is hoping to achieve somewhere just the far side of €36 billion over its lifetime, by 2025, in terms of the final figures. This is less than half the par value of the loans at the point NAMA bought them. If you look at it this way, there is a hit to the public purse there of about €38 billion that obviously had to be made up. That was the impaired loans, that was the bank bailout and that is what the taxpayer coughed up for. Should NAMA be more ambitious in trying to bridge that gap? I am aware it was probably under pressure from Government, and maybe Mr. McDonagh can clarify this for me, to sell a lot of those loans early. Some of us would have felt that perhaps they were sold a bit too early. I think it would be accepted that had NAMA been able to wait another one, two or three years, some of those loans and the properties they were on would have achieved a far better outcome. Would that be correct?

Mr. Brendan McDonagh

In simple terms that may be-----

I am not looking at it in simple terms.

Mr. Brendan McDonagh

-----something you could say but markets fall as well rise and there are economic conditions. If you think about it-----

But the markets rose throughout those years, and substantially.

Mr. Brendan McDonagh

If you were in NAMA, and the Comptroller and Auditor General will confirm this, in its first couple of years, we had in 2013 taken in excess of €4 billion of additional losses. Effectively, in terms of any profit NAMA has made, it has really been from 2014 onwards. We had to recover the €4 billion we lost in the first four years of operation. In the scheme of things, we were told there were contingent liabilities here and we had to pay down the contingent liability. In the first three years of NAMA's life the Troika was putting enormous pressure on the Government and on NAMA to pay down as much debt as possible. Obviously, in terms of the NTMA getting back into the bond markets post bailout, the Troika was very anxious we get rid of the contingent liability as much as possible, so that is why we put every effort in to pay off all the senior debt by the end of 2017.

Could I put it to you-----

Mr. Brendan McDonagh

It is like anything Chairman, if you could hold everything until the day you know it is at the highest price and then sell, you would, but I do not think there is any person in the world who can achieve that. We had to achieve deleveraging the portfolio and paying down those debts as quickly as we reasonably could while trying to extract the maximum value we could. That is what we had to do.

Okay, that has been explained clearly. What Mr. McDonagh is telling me is the Troika basically told the Government, which in turn told NAMA, to get on with the sales and the agency lost €4 billion in the first three years. It is generally accepted, if you look at the trajectory for property prices and value over, say, the past ten years, that there has been a fairly rapid rise back up again. That is what happened there. People will draw their own conclusions from that. After being stitched and told that we had to bail out Anglo Irish Bank, which I disagreed with, a failed bank where many of these loans resided, with all sorts of excuses given as to why we had to bail it out, including that the credit unions had all their money in it, which was not true, the Troika actually put the gun to the Government's head and in turn the gun was put to NAMA's head to sell off these loans at way below their value. A far better value could have been achieved two, three or four years later.

In reply to some Deputies, Mr. McDonagh said that developers held back their liability and exited NAMA. I am trying to frame this question as clearly as I can. Someone with ten acres in the middle of Dublin might have an impaired loan. They may have paid €100 million for that and an impaired loan of €100 million goes into NAMA. With a 57% discount, it would now be worth €43 million. In order to exit NAMA, does that person need to pay €43 million or €100 million.

Mr. Brendan McDonagh

Most of the developers I was talking about, who exited NAMA over the last two years, paid off the €100 million plus interest. They paid off their full par debt liability because their land value has now gone way above €100 million. Once the land value goes above €100 million, they can go to another bank or go to another funder and say, "I've got this land bank and I want to refinance my debts out of NAMA." That has happened a lot.

Am I correct in saying that up to a couple of years ago, many of them would not have paid the 100% loan back?

Mr. Brendan McDonagh

No, they would not. Even until probably 2016 or 2017, we thought a number of these people would never pay their debt back. However, some of them worked very hard and obviously there is a lower interest rate. They managed to get lands zoned and get planning permissions. They managed to build and get better prices for the product they built on their lands. They were able to accrue value in terms of their own portfolio and paid off their full debt to the taxpayer. Good luck and fair dues to them.

If most of them paid back with interest, why are we finishing up with sum of €37 billion or €38 billion?

Mr. Brendan McDonagh

Because-----

Let me finish the point. Why is the best-case scenario a yield of €37 billion or €38 billion on loans that cost €74.4 billion? The taxpayer had to bridge the €39 billion in between. Why are we achieving less than half the amount, if they are paying back over 100% of what-----

Mr. Brendan McDonagh

It is because I am talking about a limited number of debtors who are house builders who have managed, by working with their portfolio, to improve value to pay off their debt. A lot of the debtors who came into NAMA were overlent by the banks originally. They overpaid for assets and, to be honest, a lot of them were amateurs. They were the ones who had a lot of the losses in the portfolio. It is a mixed bag, but the majority of the debtors' assets have never recovered in value. They overborrowed from the banks on day one. I would love to be in a position to say that all those debtors, 800 of them, came into NAMA, the banks lent them €74 billion, we paid €32 billion for the loans and suddenly that went back up to €74 billion, but that is not-----

Given the hit that the taxpayer took, the conclusion must be that at best NAMA is achieving just under 50% of the par value of the loans. The net result is the taxpayer, the public, still needs to bridge that gap and pay that back. Our children and our children's children will pay it back. That is the point I am making. I take on board what Mr. McDonagh said about the amateurs. The banks were not amateurs; they were not supposed to be. We used to have people called bank managers. Anybody who tried to borrow money from them years ago knows how hard it was. There was a bit of common sense about the place. We cannot go back over that now. Unfortunately, a lack of regulation led us to that situation. The sum total here is that the taxpayer is taking the hit on this no matter which way it is put. I take on board Mr. McDonagh's comment that he hopes to get a surplus of even more than €4.2 billion. The net result here is that the taxpayer will still take the hit for more than half the value of those loans.

I have just one other question. Is it true that NAMA has 54 empty apartments in Finglas and 69 in Malahide?

Mr. Brendan McDonagh

Both of those are subject to remediation because they had issues around them. The 69 units in Malahide have been sold. The 54 units are sale agreed at present.

They have been sold to a British firm, have they?

Mr. Brendan McDonagh

They were subject to a major remediation programme which was only completed a number of months ago.

Have the 69 units in Malahide been sold to a British consortium for €433,000 each?

Mr. Brendan McDonagh

Yes. It is in the public domain that we have sold those units for just over €27 million. Yes, that is what they sold for.

How many vacant homes does NAMA have at the moment?

Mr. Brendan McDonagh

Sorry.

How many vacant housing units, finished or partially finished, does NAMA have on hand at the moment?

Mr. Brendan McDonagh

The last figure I saw was that we had fewer than 25,000 units which are vacant at present. They are just transient units between people exiting and new people moving in. We have very little in our portfolio which is vacant at present.

It was revealed this morning that 1,400 NAMA units are in Housing for All. Obviously, NAMA has been dealt the hand it was given on this one. The fact that they are already in the social housing stock is disappointing to say the least.

Some Deputies have indicated they wish to come back in. Deputy Catherine Murphy has three minutes.

I wish to follow up on what the Chairman said about the banks and amateur lending. That was at a time when we were told that people would not get out of bed for less than €500,000 and that if we paid peanuts, we would get monkeys. All of a sudden, we are being told there is an impediment to the banks because of the salary cap that has been imposed, which is very revealing.

Mr. McDonagh spoke about some very valuable land in Fingal. He also talked about County Kildare which obviously piqued my interest. Is that land serviced? Is land hoarding going on? What stick does NAMA have to ensure that land is disposed of rather than not being freed up, if it is serviced? There is a cost to servicing land in addition to the value of the loan or the property.

Mr. Brendan McDonagh

In terms of Kildare, we have two large sites. We have one in Newbridge and we have one in Celbridge. We are working with the local authority and the Department of Education in the case of the one in Celbridge to provide some school sites on that land and also to submit a comprehensive planning application on it. The land in Newbridge is a very well-located site with housing on all sides of it. At present it is not zoned. It is right beside the town. We will talk to the local authority. It was saying it is part of its plan and that would be absolutely ready to go because all the infrastructure is around it. We are doing that.

What about Fingal?

Mr. Brendan McDonagh

We have a lot of land in Fingal, in north County Dublin. A lot of it will have to be dealt with as part of the Fingal development plan which is under-----

Is it zoned? Is there planning permission for any of these?

Mr. Brendan McDonagh

No, these are longer term lands, but it is land that will definitely be built on. If we think about Dublin, there are only three sides to the city - the fourth side is out to the sea. This is land that is going to be developed in the next five to ten years. It is important to manage it to get the infrastructure in place to make sure these sites become shovel ready and they have zoning and planning.

As Mr. McDonagh mentioned, some of this has been going on since NAMA was set up in 2009. It would have been shortly afterwards that NAMA became active on some of these. Tens of millions of euro have been spent on legal fees. I can understand why that would be so and NAMA has also defended cases in courts.

Has there been any scenario where NAMA has had to dispense with the services of any legal companies because they were not advancing their work in the disposal of any of these assets?

Mr. Brendan McDonagh

I cannot recall one, although I do not have my chief legal officer with me to answer. We manage our service providers closely and make sure they are doing their job properly. I am not saying there has not been but, to hand, I cannot recall one.

I am very familiar with the site in Celbridge, which is a critical site in the context of the deficits in schools, including one special needs school where there are serious issues. It is infuriating to think these incredibly important pieces of land are not being brought into use. Mr. McDonagh stated NAMA is working with the people involved here. What is the impediment to dealing with this all these years later? Those two sites in Kildare are in pretty good locations. It is self-evident that they are of greater value than their economic value, in regard to, for example, the social costs of the housing crisis, schools and so on. What is the impediment?

Mr. Brendan McDonagh

Sometimes, it is a matter of getting a local authority to recognise that this is the next logical extension in terms of zoning or planning. There have been instances where there has been local opposition, where people have railed against it and objected to planning applications-----

That is not the case on the site in Celbridge.

Mr. Brendan McDonagh

No, but we have two sites in Celbridge and on one of them it does apply. As for the second one, it is in everybody's interest that it would be developed. There are lots of issues but all I can say is we come to these matters from a positive attitude. We try to sell the story that this is in everybody's interest. We work closely with the local interest groups and are trying to work closely with the Department of Education in respect of schools. We have been very active in providing sites to the Department if it needs them for schools. I am a firm believer in doing that, but much of it comes down to the local authorities. In fairness to them, there is a serious deficit of planning expertise across the system. One local authority has something like eight vacancies in its planning department and it is a pretty big local authority. There is huge deficit of that skill set. There are many issues at play but, all in all, we have a very good relationship with the chief executives of both Fingal County Council and Kildare County Council and the planning people there. Everybody is attuned to doing everything they can, within the constraints of current development plans, which are overseen by the Planning Regulator to make sure they are in accordance with national population targets. That issue has to be watched as well.

I take this opportunity to return to work this committee did following our engagement with NAMA with regard to the Project Nantes loan portfolio, which resulted, according to our findings, in a loss of approximately €10 million to the taxpayer. Following our previous engagements, the NAMA board, essentially, refused to accept the figures or engage with us, and put all this down to a miscalculation. I asked at our previous engagement whether NAMA could confirm that no other such miscalculation had emerged with regard to the disposal of portfolios and that confirmation could not be provided at the time. I presume NAMA has since examined the figures further. Can it now confirm whether any other, similar miscalculations took place in the context of disposals?

Mr. Brendan McDonagh

We are constantly looking at our portfolio and the way we do things. I am not aware of any other miscalculations. There is a whole portfolio here, spanning from 2010 to today. I cannot give an absolute assurance but I can give a reasonable assurance we do not believe there was.

I thank Mr. McDonagh for that. The committee has always acknowledged that the National Asset Management Agency Act was not necessarily breached, but we had indicated we believe NAMA should have done more to investigate the connections between companies managing assets on its behalf and the companies seeking to purchase NAMA loan portfolios. Mr. McDonagh will recall that was a matter of serious concern. We stated we believed the circumstances that existed to allow this to occur represented a failure of due diligence. The response to our report indicated simply that what had happened with the terms of Project Nantes loans was not a contravention of section 172(3) of the Act and so on. We had premised our report by acknowledging that this was not illegal but that measures needed to be put in place.

NAMA may be wound up and we do not know what will happen in the future. If it is wound up, will it carry out, as part of the wind-up process, an appraisal of some of the practices from which lessons may have been learned to advise governments in respect of future policies? Should that issue form part of any such proposals to the Government?

Mr. Brendan McDonagh

From NAMA's point of view, we have always been a lessons-learned, continuous improvement organisation. If there is something that can be improved, we are always anxious to improve it. If anyone wants our advice, we give it. My colleagues and I regularly give advice to other countries that are considering setting up debt management agencies in respect of issues they need to deal with and anticipate. We do that quite regularly. I would like to think we are quick learners and can adapt quickly and that we learn from any matter that arises. We have put considerable resources into our controls and internal audit. I do not mind telling the Deputy that I have quite a difficult audit committee, which is very demanding and does not like seeing any audit points raised in respect of NAMA. If it does, it makes its concerns or unhappiness known to me and tells me to sort it. Thankfully, over the years, we have improved our controls and mechanisms such that we get very few audit points at this stage.

I thank Mr. McDonagh. We will return presently to other Deputies who might have follow-up questions. To return to the overall sums, the par value is €74.4 billion, having been bought by NAMA for €31.8 billion. The agency has a surplus of €4.2 billion and that will, one hopes, go closer to €5 billion, although that still leaves us in the region of almost €38 billion short in terms of the hit to the public purse. We know how that grates with the public following the bank bailout. Mr. McDonagh confirmed that the troika held hard on that and the Government told NAMA to start selling off properties quickly to try to satisfy the troika. It is accepted that if NAMA had been able to wait longer, the value of the properties would have increased considerably. There were fire sales, basically.

I recall from that period that much of the property was bundled into quite large portfolios, which meant there was a limited number of bidders or people who were able to raise the finance to bid and acquire those loans.

Is it the case or would I be correct in saying that had more time been available and had many of those parcels of properties or portfolios been broken down into smaller lots there would have been more bidders? Over the last seven or eight years many economists have raised this issue, that the size of the portfolios meant that NAMA was down to less than a handful of financial institutions or investment funds, and in some cases one or two, that had the firepower to be able to buy them. Is it the case that if they had been broken down into smaller lots, there would have been more bidders available?

Mr. Brendan McDonagh

The biggest number of debtors we sold was in a loan sale called Project Arrow in 2015. That was approximately 300 debtors. We had a very close look at the portfolio before we sold it. They were generally the amateur debtors. They were generally the ones who had bought property and the assets were of quite low value. They did not bring much expertise to the table in terms of what they could offer us to add value so we bundled them up and sold them in a big portfolio sale. We also bundled, as the you rightly say, Chairman, a number of office properties together and sold them in portfolios. At the time we were also trying to attract international capital into the country, and international capital is not interested in €1 million or €2 million transactions. It wants bundles of €50 million or €100 million. We were doing that to attract bidders into this. They were openly marketed. That was necessary. In many of these there were five or six bidders and competitive tension. From our point of view, we sold the portfolio at what we believed to be a reasonable pace. We had an objective to pay off the contingent liability. There was an issue about the NAMA debt overhanging on the national debt and the ability to raise money. In the scheme of things, we did things within the confines of what we could do, and we got the best value that we possibly could in the scenario.

On the last question-----

Mr. Brendan McDonagh

There was never a right time when we could say we could hold it and we could get more money. If the market fell, we would be blamed and asked why we did not sell it two years ago when the price was higher. It is like looking at the bank shares scenario. They were higher a couple of years ago than they are now, so should one have sold one's stakes in the banks a couple of years ago rather than now? There is no right answer to this.

I have a question about the large portfolios. What was the lowest number of bidders for any of those large portfolios? You mentioned five or six.

Mr. Brendan McDonagh

In terms of one quite large portfolio, there were only two bidders at the end.

Mr. Brendan McDonagh

However, the cheque was very big. That is what one gets when one brings large portfolios to the market. However, breaking up some of these portfolios is not always easy, and it is not always the best thing to do.

However, you understand the point I am making - 350 bidders and 350 separate pieces of property. You mentioned a lot of them were amateurs and we accept that, but you are going from 350 to two. If you are trying to sell a bullock at the mart and you are down to two bidders, with only two interested parties outside the ring, it will not go well for you. That is the point I am making. You are without a lot of bidders.

Mr. Brendan McDonagh

Chairman, I have personally sold bullocks so I understand what you are saying. One has to weigh up the market and the circumstances, and one has to try to figure out how one is going to get the best return.

Finally, I refer to the locations of the 7,000 units that were offered. You may not have the information with you, and that is fair enough, but would you send the locations to the clerk? I do not want the location of every house and apartment, but what counties they were in and the number in each county. Perhaps you could forward that to the committee because this has been raised at local authority level.

Mr. Brendan McDonagh

Yes, there is no problem with that.

Deputy Catherine Murphy has a final question. I ask you to be brief.

The Harcourt Square site with the Garda headquarters was bundled with others. The OPW has now had to embark on a building on Military Road, where there is a very tight timeline and there could be penalties. It could end up being way more costly. In hindsight, should that have been separated out? What were the issues there with regard to the State acquiring it at the time? It is probably going to end up costing a lot of money this way.

Mr. Brendan McDonagh

With regard to that site we inherited, there was a legal dispute already going on between the debtor and the OPW at the time. The OPW had to go into a settlement agreement with the debtor. At that stage, it was always up to the OPW if it wanted to make an offer to purchase the site. It did not, for whatever reason. Obviously, as a consequence of that I think the site was ultimately acquired by Hibernia REIT. It is going to develop that site and the OPW has arranged to build a new Garda headquarters or operation on Military Road. That was something that was outside our control. As with anything, if a State body expresses an interest in acquiring a site we do our best to facilitate it, and it acquires it at whatever the independent market value is. We have done that many times over the lifetime of NAMA.

Is there any one that Mr. McDonagh regrets, such as Battersea or the like, where he feels NAMA would have got more for it?

Mr. Brendan McDonagh

That is one site I do not regret. We only owned 50% of the loans for Battersea and we got in excess of our par debt back on that site. That site would have required £5 billion or £6 billion in capital to-----

I am just using it as an example. There must be one that Mr. McDonagh has some regrets about.

Mr. Brendan McDonagh

I have come to realise over my life in NAMA that when one makes a decision to sell, one accepts that. One cannot keep looking back and saying, "I should have done this" or "I should have done that". When one makes the decision at the time, one must live by the decision. Others will judge whether it was good or bad, but at the time, as long as one had good reason to make that decision, one has to live with it.

I will conclude. I thank the witnesses for joining us today and the staff in NAMA for the work involved in preparing for the meeting and the information provided today. I also thank the Comptroller and Auditor General, Mr. McCarthy, and his staff for attending and assisting the committee's work.

Is it agreed to request the clerk to follow up on information and carry out any actions agreed arising from the meeting? Agreed. Is it also agreed that we note and publish the opening statements and briefings for today's meeting? Agreed. I bring to the attention of the members that the Comptroller and Auditor General's annual report will be published this afternoon and a press release on that will be issued by the committee.

The meeting is adjourned until 9.30 a.m. on Thursday, 7 October, when the committee will engage with representatives of the National Treasury Management Agency and the State Claims Agency. That engagement will conclude at 12.30 p.m. The good news is that we will have extra time that day. We will then suspend before resuming in public session at 1.30 p.m. to consider correspondence and other business of the committee.

The witnesses withdrew.
The committee adjourned at 11.30 a.m. until 9.30 a.m. on Thursday, 7 October 2021.