Joint Committee on Finance, Public Expenditure and Reform debate

Acting Chairman (Deputy Tom Barry)

I welcome, from the National Asset Management Agency, NAMA, Mr. Frank Daly, chairperson, Mr. Brendan McDonagh, chief executive officer, Mr. Donal Rooney, chief financial officer, Mr. Michael Moriarty, head of asset recovery, and Ms Mary Birmingham, head of asset management. In our first public session this afternoon I am pleased to have the opportunity before the recess to hear about developments in NAMA, not least its response to the difficulties facing the housing market. I thank the witnesses for their attendance here today. The format of the meeting will be that Mr. Daly and Mr. McDonagh will make some opening remarks, which will be followed by a question and answer session.

I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing ruling of the Chair to the effect 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.

I invite Mr. Daly to begin.

Mr. Frank Daly

Thank you, Chairman. We last appeared before the joint committee just over a year ago and can report that very good progress has been made in the meantime across a range of activities. In 2015, to date, we have generated cash receipts of €8.8 billion, which brings the total cash generated since inception to €32.4 billion. Recently, for the first half of the year, we reported a profit of €473 million, including, for the first time, a write-back on impairment. This was higher than the €458 million profit we had reported for the full year of 2014. We expect the 2015 full-year profits to be well in excess of €1 billion. Crucially, from our perspective, we are close to achieving our target of redeeming 80% of our senior debt by the end of 2016. As of today, we have redeemed €22.1 billion or 73% of the €24 billion required to achieve that target. We are confident of redeeming all of our senior debt by 2018 and repaying our €1.593 billion subordinated debt by the first call date of March 2020. As of today, based on current market conditions continuing to prevail, our expectation is that by the time we complete our work, we will have generated a surplus of the order of €2 billion to hand over to the Exchequer. This is some distance from the forecasts of some commentators who not so long ago were predicting NAMA losses of up to €8 billion.

Our strong cash position, bolstered by the proceeds of the Project Arrow transaction which was completed last Friday, means that we have the capacity, if required, to fund two significant development programmes which would help to address major supply shortages of residential and office accommodation, particularly in the Dublin area. The chief executive, Mr. Brendan McDonagh, will outline our plans for facilitating and funding the delivery of 20,000 residential units on a commercial basis, mainly located in the greater Dublin area, by 2020. I will focus on the progress made in facilitating the development of key sites which secure our loans within the Dublin docklands strategic development zone, SDZ, area.

The development of the Dublin docklands SDZ is a major priority for NAMA and one on which excellent progress has been made in a relatively short time. Shortly after the docklands area received SDZ designation in May 2014 the NAMA board approved a docklands SDZ business plan and established a special delivery team to oversee the development and, if necessary, funding of sites within the docklands SDZ. The sites under the control of NAMA-appointed receivers and investment partners have the capacity to deliver 3.8 million sq. ft. of commercial space and about 2,000 residential units. The position as of today is as follows: construction has started on sites which are expected to deliver just over 780,000 sq. ft. of commercial, mainly office, accommodation and 245 residential units. Planning permission has been obtained or sought for another 1.8 million sq. ft. of commercial development space, including office, hotel and 970-bed student accommodation, in addition to 326 residential units. This includes block 10A on North Wall Quay where in recent days planning permission was received for a development of almost 400,000 sq. ft. Pre-planning work is under way on the remaining 1.3 million sq. ft. of commercial space and some 1,168 residential units. Planning permission was received recently for the construction of a new road from Sheriff Street to North Wall Quay. Construction is expected to begin during the second quarter of 2016. Design work is also under way for the construction of a number of new pedestrian bridges which will facilitate access between the north and south docklands areas.

There are 14 individual sites within the SDZ area which secure our loans. The approach we adopt towards each site depends on its particular characteristics and particular complications that may attach to it. Accordingly, the level of our involvement in the development of sites can vary considerably from very active involvement in some cases to a more passive role in others. In the case of Boland’s Mill, now designated as Boland’s Quay, we have committed to advancing to the receiver all of the required development and associated funding – about €170 million - to enable the site to be developed. The project which will include two landmark office buildings and a block of apartments, in addition to retail, commercial and cultural space, is expected to be completed by the end of 2018.

In other cases, our role is less active. For instance, in the case of a development at 8 Hanover Quay, our involvement is by means of a share in a fund - in this case, an Irish collective asset management vehicle, ICAV - with two joint venture partners. We have also provided construction funding for the project on arm’s length commercial terms. The ICAV’s function is to secure planning permission, procure a tenant, develop the site and dispose of the property when completed. A tenant – Airbnb – has been secured and the sale of the building is close to being agreed. Construction began earlier this year and is expected to be completed during the first quarter of 2016.

We have adopted a different approach again in the case of a site at 72 to 80 North Wall Quay, Project Wave. In this instance, we entered into an agreement with Oxley Holdings Limited which was selected after an open market process. Under the agreement for lease structure, it acquired the right to develop, manage and realise the site. NAMA has retained the freehold interest and will receive a secure income stream, in addition to a percentage of future sales proceeds.

The development work which has begun in the docklands SDZ will have a major transformational impact on the area and the associated benefits will be felt for many decades to come, not least in the attraction of quality foreign direct investment to Ireland. I emphasise the progress made to date in the docklands would not have been possible without the positive engagement and support we have received from Dublin City Council, both in its capacity as planning authority and as development agency for the area.

NAMA was established almost exactly six years ago. Our first board meeting, the minutes of which I was just looking at today, was held on 23 December 2009; we are, therefore, within a week of our sixth anniversary. I cannot help but contrast the very fraught circumstances in which NAMA came into being with the much more positive outlook today. As I mentioned, I recall reading newspaper articles during those early days which included forecasts by various commentators who were predicting authoritatively that NAMA would incur losses of up to €8 billion during its lifetime. Thankfully, they have been well wide of the mark. We will deliver a profit of at least €2 billion. Part of the initial pessimism had to do with the fact that people were unsure about the asset management agency model as a mechanism for dealing with the soured property lending of the banks. In the European context, it was largely untried and untested on the scale envisaged for NAMA. Part of the pessimism also reflected the depth of despair many felt at the rapidly deteriorating property lending crisis as it unfolded during 2009 and 2010. Either way, there was not a huge amount of hope to propel NAMA on its way. The intervening six years have often been difficult and challenging. There can be few organisations which have been the subject of so many differing views and expectations of its role and what it was expected to deliver.

Some took the view that NAMA's job was to hold its portfolio for the long term, the premise being, I presume, that somehow the Irish market would recover without the stimulative impact of NAMA's market transactions. Others took the opposite view, that we should forget about maximising the recovery value of the loan portfolio and instead sell the portfolio quickly to generate activity and thereby stimulate the Irish market out of the torpor into which it had fallen as a result of the crisis. There was also a view that NAMA's role should have been to donate property at little or no cost to various groups and activities. This we could not do, however, as we are obliged under the legislation to act commercially and ensure debtors maximised their debt repayments from asset sale proceeds. Those debt repayments go back to the Irish taxpayer. Another view was that NAMA should enforce against all of its debtors on the basis that those who were part of the problem should not be part of the solution. Finally, we had those who characterised NAMA dismissively as a debt collector, the implication being that those who borrowed millions and billions should have been granted a moratorium on debt repayments at the same time as many ordinary people were struggling to keep up payments on their mortgages.

In reality, NAMA could not be all things to all people and, indeed, it never sought to be. We were obliged to operate to the clear and unequivocal mandate set for us by the Oireachtas, namely, to conduct our business on an independent and commercial basis and, subject to that requirement, if we could also make a worthwhile social and economic contribution, so much the better. This clear mandate meant, first and foremost, that we had to recover the €32 billion of debt we incurred to acquire loans from the banks. This meant working with our debtors and receivers, who controlled the underlying property collateral, to repay as much of their debt as possible. If, as a result of our efforts and those of our debtors and receivers, there is a surplus by whatever future date we complete our work, that surplus will be handed over to the Exchequer. I take this opportunity to refer to the significant amount of commentary we have seen recently regarding one of our sales transactions. To clarify, we cannot give preferential treatment to some bidders at the expense of others who are willing to pay higher prices for assets. If taxpayer funds are to be allocated to particular groups or activities, it is appropriate that the elected Government, not NAMA, should decide how those funds are allocated and which groups or activities benefit from them.

I mentioned earlier that the asset management agency approach was untested on a major scale in the European context until it was implemented in Ireland with the establishment of NAMA in 2009. My view that the agency has been very successful in carrying out its work is a view shared by major international organisations and by other sovereigns. A recent report by Moody's, for example, compared NAMA very favourably with two other large European sovereign work-out vehicles, Sareb in Spain and Germany's FMS-WM. Of course, NAMA has had its share of critics, not least among that minority of debtors who expected their spell in NAMA to be one long untroubled sabbatical from reality, with no requirement on their part to make the adjustments necessary to deal with the crisis. That was not how we saw it and I doubt if taxpayers would see it that way. The cosy relationships between some debtors and their banks could not continue if the crisis was to be addressed.

We are often asked for advice by other sovereigns which have established or are contemplating the establishment of entities similar to NAMA. Our view is that the asset management agency approach works best where one has a portfolio of distressed assets which are broadly similar - commercial property loans, in our case - and there is sufficient scale to justify the recruitment of experienced specialists to manage it in a professional manner. We also highlight the importance of a clear and independent statutory mandate to enable the business to be conducted in a commercial manner and without external interference. We emphasise, too, something that has been very important in terms of attracting and consolidating investor interest in Ireland, namely, the assurance that transactions will be openly marketed, managed in a professional manner and that the best bids will be accepted with no preferential treatment for anyone.

With the very formidable challenges of the past six years behind us, we have now begun the final phase of our work. This will involve facilitating an expanded residential delivery programme and the development of the Dublin docklands strategic development zone, SDZ. The primary motivation for these programmes is commercial, that is, to maximise the sales proceeds our debtors and receivers can generate from their assets and thereby enhance their capacity to repay their debt to taxpayers. Given the serious supply shortages of residential and office accommodation in Dublin and other urban areas, these programmes are likely to generate wider economic and social benefits. Those seeking to purchase their first homes will benefit from the greater choice that will be available as new supply is delivered. New supply will act to reduce upward pressure on sales prices and on the level of rents. I am convinced that NAMA funding of this programme will mean that supply comes on stream sooner than would be the case if the sites were to be sold to the market.

There will also be major benefits in terms of employment. Our estimates, based on industry benchmarks, suggest that construction funding on the scale proposed will lead to the creation of 30,000 construction jobs when activity reaches its peak. In addition to direct jobs, this scale of construction activity will generate an additional 10,000 jobs downstream in the construction supply chain. There will also be fiscal gains from this increased economic activity in the form of higher tax receipts from newly employed construction and other workers and an associated reduction in social protection payments. We expect NAMA's funding of residential projects will generate a positive return for taxpayers and thereby enhance the currently projected €2 billion surplus that is to be transferred to the Exchequer when we complete our work. NAMA debtors and receivers, even operating at full capacity, can deliver only one fifth of the 100,000 unit supply that will be required over the next five years. That leaves more than enough scope for others to deliver the additional 80,000 units the country so badly needs.

Mr. Brendan McDonagh

My colleague, Mr. Daly, has spoken about the progress made on the redemption of NAMA's senior debt and the development of the Dublin docklands SDZ. My comments will be directed at another initiative which we expect to form a major part of NAMA's work in the years ahead, namely, our role in funding the development of a major residential delivery programme between 2016 and 2020. The shortage of housing in the main urban areas and particularly in Dublin has been well documented by now. The cause of the shortage is no great mystery. A fall of more than 50% nationally in residential prices between their peak in 2007 and their lowest point in 2013 meant that residential development, by and large, became commercially unviable, given that construction costs remained fairly constant throughout that period.

It is worth bearing in mind that it has taken an increase of 35% in residential sales prices from their low point in 2013 to bring many sites to the point where development might be a commercially viable option, as is now the case for a minority of sites. The average three-bedroom home in the Dublin area, the type of unit we propose to fund on many of our sites, costs €260,000 to €280,000 to build, taking all costs including site value into account, and is currently selling for €300,000. Based on official CSO house price indices, however, even as recently as April 2014, such a house would have achieved a sales price of only €240,000, which is well short of the break-even mark. No funder in the Irish market, including NAMA, would have been willing to engage in speculative funding of residential construction based on a hope that prices might rise in the future.

There have been suggestions from some quarters that NAMA and the banks should have been actively funding residential development during the period from 2010 to 2012 when prices were in free fall. This viewpoint is seriously out of touch with any commercial reality. The NAMA board could not have done so as it would have been at variance with our obligations under section 10 of the NAMA Act. It is simply not realistic to suggest that any funder, be it NAMA, one of the banks or any private investor, should have sunk funds into property projects that were not commercially viable. It certainly is not realistic to suggest this would have happened while the country was still reeling from a major property market collapse. As CEO of NAMA, I doubt this committee would have been impressed if I had appeared before it in those earlier years and told members we were funding loss-making residential development at a time when prices were still falling and there were few sales taking place in the market. The committee, quite rightly, would have drawn my attention to NAMA's statutory obligation to act in a commercially sensible manner.

Price rises over the past year or so prompted us to review the residential sites securing our loan portfolio to assess whether funding the development of those sites would be a commercially viable proposition. In particular, we asked our specialist residential delivery team to carry out a detailed, site-by-site review to assess the scope within the portfolio for funding a delivery target of 20,000 units by the end of 2020. Arising from that detailed review, we are confident that sites capable of delivering 13,200 units are commercially viable to develop at current prices. We are also confident that intensive asset management work on other sites, including enhanced planning and the provision of strategic infrastructure, will ensure the residual 6,800 units are likewise delivered.

With that in mind, we intend to work closely with local authorities, with Irish Water and with Transport Infrastructure Ireland to address any infrastructural issues which are impeding the development of sites which would otherwise be commercially viable. The 20,000 unit target set for the period from 2016 to 2020 is in addition to the 2,300 units which have been delivered since the beginning of 2014.

In addition to working towards funding housing delivery, NAMA has also focused on funding new or improved planning permission for other sites which secure its loans. In addition to the 2,300 units which have been completed to date, construction has begun on sites which will ultimately deliver another 3,000 units. Over 900 units have been built on sites sold by debtors and receivers since early 2014; these sites have a capacity to deliver 11,000 units. Another 5,000 units have received planning permission with construction expected to begin on the majority of these in 2016. Planning applications have been lodged or will be lodged within 12 months for another 9,900 units. Finally, another 32,500 units are at the pre-planning stage or feasibility stages.

Delivery of this programme will be a major challenge. NAMA, through its funding and management activity, aims to increase delivery from an average of 1,250 units per annum to an annual average of 4,000 units in 2016-2020. We would expect that much of our funding will go towards the construction of starter homes in the €250,000 to €300,000 price bracket. Construction is currently taking place on some 40 sites and this will need to be increased to 100 concurrently active sites if the target is to be met. It is estimated that NAMA debtors and receivers control only about 30% of zoned residential sites in the Dublin area. To achieve the 20,000 unit end-2020 target, NAMA will work with existing debtors and receivers but we also plan to work with joint venture partners and with non-NAMA housebuilding firms. NAMA is keen to ensure that a wide array of market participants will contribute to this programme and, to that end, is seeking expressions of interest from potential partners willing to work with it over the next five years to deliver badly needed housing in Ireland.

A new residential delivery division has been established in NAMA to bring drive and focus to its expanded residential delivery programme. Our projections indicate that total funding for the programme will be €5.6 billion, assuming 20,000 units, and that peak funding will be €1.8 billion. Based on sites which are currently viable, NAMA's overall return on the programme is projected to be 15%.

Under Section 10 of the NAMA Act, NAMA is required to operate on a commercial basis. Since its inception, it has funded numerous development projects relating to assets securing its loans. Our key criterion for funding any development project is whether the project will generate a better commercial return with funding than it would generate from alternative options such as a straight sale. For the debtor or receiver, that higher return means that more of the debtor's debt can be redeemed. As with all projects, funding for residential development projects must meet a stringent commercial viability threshold, a commercial return which is broadly in line with what a private investor or lender would require. NAMA will only fund projects that pass this test. The funding rates that we propose to apply to construction funding will be in line with corresponding rates in the market.

We are aware that a complaint has been submitted to the EU Commission alleging that there may be State aid implications to our proposal to fund commercially viable residential projects under the control of our debtors and receivers. In conjunction with the Department of Finance, we have had preliminary engagement with the Commission. I am reluctant to comment further at this stage other than to indicate that the NAMA board is entirely satisfied that our proposed programme does not constitute State aid. It has been claimed that NAMA's involvement will leave the market in a state of crisis by forcing competitors out of business. This I reject out of hand. Most forecasts suggest that aggregate market demand will be for about 100,000 units up to 2020. It is worth pointing out that the NAMA programme, even if fully delivered, will meet only 20% of the 100,000 housing units required over that period. That suggests that there is a lot of scope left for others to contribute the additional 80,000 units that will be needed to meet expected demand over the period.

In addition, NAMA debtors whose projects are likely to be funded by us are among the best house builders in the country in terms of their track record over the years, both in terms of the volume of houses delivered and the quality of their developments. It is vitally important for the future of the sector that these developers are working to full capacity over the next five years. Not only can they make a major contribution within that period but it is also important that, when they emerge from NAMA, they are in a position to exert a positive and significant impact on residential delivery for many years to come. Finally, it is worth bearing in mind that any financial surplus generated by the residential delivery programme will be transferred to the Exchequer and will thereby reduce the losses incurred by taxpayers as a result of poor property lending by financial institutions and excessive borrowing by debtors during the last decade.

On social housing, we have been working hard to contribute to its delivery. Since the start of 2012, we have identified over 6,500 houses and apartments, controlled by our debtors and receivers, as available for social housing. Some 2,500 of these have been confirmed as suitable by local authorities. NAMA has been working with its debtors and receivers, together with local authorities, housing groups and charities, to ensure that these 2,500 houses and apartments are delivered as quickly and as efficiently as possible. I am happy to confirm that by last Friday, 2,000 of the 2,500 houses and apartments had been delivered. This was our target for end-2015. To put this into context, the 2,000 units equate to more than one third of the total delivery of Part V social housing between 2002 and 2011 of 5,700 units, and this was during a period of unprecedented housing output in Ireland when 550,000 new residential units were built. These 2,000 homes have been delivered across 131 individual projects spread over 18 counties and have involved transactions with 18 approved housing bodies and nine local authorities. Along the way, we have invested over €70 million to remediate and complete properties.

We have also taken initiatives which have helped to streamline the process, including the establishment of a special purpose company, National Asset Residential Property Services, NARPS. The NARPS vehicle, together with the direct leasing or sale of social housing units by NAMA debtors and receivers, has become an increasingly important mechanism in delivering social housing. Over 70% of the units delivered in 2015 were delivered through NARPS. We have invested more than €150 million through NARPS to buy houses and apartments from our debtors and receivers and to lease them directly to local authorities and approved housing bodies. By the time all properties are delivered under this initiative, NAMA will have spent more than €250 million in remediating and completing properties and in buying properties through NARPS. Delivering these units for social housing is a win-win situation. First and foremost, people who need a home get a home. For the local authority, it means a shorter waiting list for social housing and an unoccupied property is finally brought to its intended use. This has also helped us to reduce the number of unfinished housing estates from 332 in 2010 to 47 at end-2015 and we expect these last 47 estates to be resolved by end-2016.

In addition to the 2,000 social housing units delivered by end-2015, and in line with Part V requirements, a significant delivery of social housing will be part of NAMA's expanded 2016-2020 residential delivery programme. As you know, the revised requirement is that 10% of all new schemes be reserved for social housing. Wherever feasible, NAMA will facilitate the provision by its debtors and receivers of future Part V housing on NAMA-funded developments through the NARPS vehicle. This will mean that NAMA, rather than local authorities, will bear the upfront capital cost of delivering Part V housing on developments that it funds. Instead of the local authority purchasing the units from the developer, NARPS will do so and will then enter into a leasing arrangement with the local authority or approved housing body.

There have been some representations to the Minister for Finance recently to the effect that NAMA-funded development sites should be required to include a higher proportion of social housing than applies in the case of Part V housing generally. I would suggest that it is neither equitable nor feasible to impose different social housing obligations on developers, based purely on their sources of development finance. To impose on a NAMA debtor a higher obligation to deliver social housing than is imposed, for instance, on a developer who is funded by a bank or who has access to other sources of finance, would be arbitrary, discriminatory and very likely to be subjected to legal challenge. It will also have the effect of reducing the commercial viability of sites. Given that, under section 10 of the NAMA Act, NAMA can only fund commercially viable projects, the net effect therefore would be to reduce the total number of units which could be delivered. From the perspective of a NAMA debtor, his primary objective is to redeem as much of his debt as he can. If he is faced with additional obligations over and above those that are imposed on non-NAMA developers, he will clearly find it more difficult to repay any given amount of debt than would his counterpart who has borrowed from a bank or from another source of capital. I cannot see how such an additional imposition could survive legal challenge.

There was a widespread perception in earlier years – although less so now - that every unfinished estate in the country was under the control of NAMA. In fact, that was far from the true position. After we analysed the collateral securing our acquired loans, we estimated that only about one in ten unfinished estates in Ireland was under our control. At that stage, NAMA loans were secured by 332 estates that were classified as unfinished by the Department of the Environment, Community and Local Government. As mentioned earlier, that number is now down to 47 and we expect these to be addressed over the course of 2016 once site resolution plans are finalised with local authorities. It is worth adding that about half of the 2,000 social housing units that NAMA has delivered to date are located on estates that had originally been classified as unfinished. In completing these units, not only have the new residents benefited but existing residents have also benefited from the enhancement of the estates concerned.

What has been achieved over the past six years, in often difficult circumstances, is a great tribute to the NAMA board, the Executive team and, particularly, NAMA staff.

As the committee will be aware, officers of NAMA are employed on specified purpose contracts which expire at NAMA's discretion. There cannot be many situations whereby the better one performs one's work, the sooner one will be out of a job. This has been the context in which NAMA staff have been operating for the past six years.

Over recent years, unlike employees of other commercial State bodies, NAMA staff became subject to FEMPI legislation, including the consequential salary cuts. As a result, we lost many experienced and expert members of staff. In 2013 and 2014, the level of staff turnover was such that we faced a challenge in maintaining sufficient continuity to ensure that our functions were carried out to the high professional standards that we had set for ourselves.

The decision of the Minister for Finance last year to approve a redundancy programme for NAMA staff was helpful in stabilising a difficult situation. The programme is expected to cost €20 million over NAMA's lifetime. Some €14 million of this relates to standard public sector redundancy terms, including two weeks’ statutory pay per year of service, capped at €600 per week, plus three additional weeks of base salary per year of service with an overall cap of two years' base salary. The other €6 million relates to an additional redundancy payment which is designed to ensure that staff remain for as long as we need them – this element equates to a one-off payment of ten weeks of final salary. It should be borne in mind that this scheme only applies in circumstances where staff members are being made redundant and have remained with NAMA for the period required to fulfil its mandate, and at NAMA's discretion.

The NAMA scheme should not be confused with certain retention schemes which have been the subject of recent public discussion, whereby certain staff in State bodies receive payments while remaining employed within an organisation. NAMA has made no such payments since its inception and I reiterate that the NAMA scheme only applies when a staff member is leaving at NAMA's discretion.

Acting Chairman (Deputy Tom Barry)

Is it agreed that Senator Aideen Hayden would take the Chair? Agreed.

Vice Chairman

Opening statements have concluded and I now invite members to put questions within the agreed limits of ten minutes per spokesperson of each political grouping and five minutes for all other members. Deputy McDonald might like to begin.

Mr. Daly said NAMA had a clean bill of health.

Mr. Frank Daly

Sorry, I said - and it is an important distinction - that they reside on the purchase side and not with the purchaser. I have not made any allegations against Cerberus, which was the purchaser.

Deputy Mary Lou McDonald

I take that correction. It is the purchase side. Of course, it subsequently emerged that Mr. Cushnahan, in addition to all of the other controversies surrounding him, had, in fact, had a meeting with PIMCO, the original bidder, while still engaged by NAMA. I know Mr. Daly wrote to Mr. Cushnahan on 19 November 2015 because I have a copy of the letter in front of me. Has he had a response to this letter?

Mr. Frank Daly

Yes. The allegation that Mr. Cushnahan met PIMCO was given in evidence by the First Minister of Northern Ireland, Peter Robinson, to the committee on finance, in which he stated that in May 2013 he had met PIMCO and that Mr. Cushnahan was there. This was news to NAMA. We were not aware of this. I wrote to Mr. Cushnahan on 19 November and asked him to come back to me on whether this was correct, whether he had any views or whether he wanted to tell me anything about it. I also asked him to clarify whether any other relevant meetings had taken place. I asked why he had not declared or deemed it appropriate to declare these interests to NAMA. I have not had a reply from Mr. Cushnahan to this. We provided the letter to Mr. Cushnahan to the Northern Ireland finance committee. We also sent it to the Committee of Public Accounts and I understand it was noted.

Vice Chairman

I fully respect the fact that Mr. Daly is replying to a question put to him by Deputy McDonald, but I have made the position clear to both of them. We are getting into the specifics of a particular case, which is not the function of the meeting we are attending.

Deputy Mary Lou McDonald

It is, as a matter of fact. What is the topic?

Vice Chairman

The position was made very clear by me and by the preceding Acting Chairman. Everyone was advised that they should not make charges against any person, persons or entity by name or in any such way as to make him, her or it identifiable. I ask everyone to please respect this. It is in accordance with the Defamation Act 2009. If people depart from this they do so at their own peril.

To be clear, I interrupted the line of questioning for approximately one and a half or two minutes, so I will give the Deputy the benefit of the doubt and allow an additional two minutes for questioning.

Deputy Mary Lou McDonald

I thank the Vice Chairman. That is very generous.

Did Mr. Daly give him a timescale to respond to him?

Mr. Frank Daly

It was not opportune. It was within the regular timeframe in which we would write a reminder letter to somebody.

Vice Chairman

Can we let the conversation-----

Mr. Frank Daly

The commercial mandate has had to inform our activities. It is the only way we can operate. Otherwise, we would be in breach of the Act. For a couple of years in circumstances in which, as Mr. McDonagh explained, it was not commercially viable to build houses, doing so would have been purely speculative development and would have been irresponsible on our part. As matters changed and the previous situation of commercial viability became a reality, NAMA was pretty much the first body to start planning to build houses again. That is what the 20,000 programme is all about. Remember that we have already delivered 2,300 of those 20,000 units.

Deputy Richard Boyd Barrett

I am running out of time. I take Mr. Daly's point, but the idea that NAMA has tracked the market, which is its mandate, is crazy and we are paying the price for it. I must be honest and say that.

On the delivery of social housing, out of the 70,000 - now 52,000 - existing or potential units, the total that we can expect for social housing from NAMA is 2,000. Is that not a pathetic return?

Mr. Brendan McDonagh

The planning legislation applies to all operators in the market on the same basis. That was the point I made in my speech.

Deputy, we have a number of people who wish to come in on this topic and we have time constraints. If there is time left at the end - I doubt there will be - I will certainly come back to you.

I hope my opinion is the same as that of the chairman. One of the remarkable things is that one would have thought that in the depths of a recession in which over 100,000 people in the construction industry lost their jobs, like any business the prices would drop. However, the cost of building has effectively flat-lined all the way through from 2010 until today. People can use all manner of excuses not to build. They can say local authority levies are too high. They were high in certain places but, in fairness, the Government has done something to resolve that. They could say there was no clarity around Part V regulations. The Part V regulations have now been clarified. They could say there was no availability of construction finance. Far more players are providing construction finance now. They could complain about the cost of construction finance, but construction finance has become more available and is becoming easier and more affordable.

However, the main thing that might be holding back the issue is that house prices were rising rapidly. They recovered by 35% from the low point. Then, earlier this year the Central Bank introduced prudential rules, which effectively has had the effect of slowing down house price inflation. What we are seeing is that first-time buyers can secure up to approximately €320,000. This is based on the Central Bank rules of property priced up to €220,000 with a 10% deposit and in cases above that level there must be a 20% deposit. However, people cannot buy anything from €320,000 up to €450,000.

One then has a different market again above €450,000, in which people who are probably in negative equity are able to buy the bigger houses. However, this has resulted in something remarkable in the sense that some schemes in the commuter belt that were not viable 12 months ago are now becoming more viable again because people are beginning to commute again. They are buying houses in counties Wicklow, Meath, Louth and Kildare. This is because they believe they cannot buy a house in Dublin and consequently are buying houses in these areas. It is remarkable to me that people are sitting back and stating they will not build until sales prices rise. This means that they are not satisfied with a profit of €20,000 per house but wish to wait until it is €50,000, €75,000 or €100,000. That is the market; one cannot force people to build, but we have a severe housing shortage. NAMA commissioned some research by the Economic and Social Research Institute, ESRI, that considered population figures all the way out to 2030 which suggests an average figure of 20,000 units per annum will be required. Our debtors control approximately 30% of the landbank, while others control 70% of the landbank in Dublin and they are not building. As for those who state it is not profitable, NAMA is involved with our debtors and it is profitable. It is a question of how much profit people wish to make.

Deputy Pat Rabbitte

Does Mr. Daly wish to say anything in this regard?

Mr. Frank Daly

Not really, that pretty much sums it up. There is a huge demand and if one leaves aside NAMA and our 20,000 units, there is an opportunity to provide 80,000 houses up to 2020. In the future, the model of the house builder or the developer will probably be broader than it is. In the United Kingdom, for example, the vast number of houses are built by PLCs, not by the traditional small developer we have seen here. It probably would be no harm to see a greater mixture in the Irish market.

We are back in public session. Deputy Doherty has five minutes.

Deputy Pearse Doherty

Fáilte roimh an coiste. When did Mr. Daly become aware that Mr. Frank Cushnahan held shareholdings in the Graham Group of companies, companies that were associated with NAMA?

Vice Chairman

I am sorry, Deputy. I have reiterated this on a number of occasions. There is a long-standing ruling to the effect that members should not mention a person who is outside the House in any way as to make him or her identifiable. If he likes, we can go into private session while we resolve this matter.

Deputy Pearse Doherty

This is a publicly available document. It is a letter from Mr. Daly to Mr. Frank Cushnahan on 19 November which goes to the heart of the breaches of the ethics Act and section 30 of the NAMA Act. When did Mr. Daly first became aware that Mr. Frank Cushnahan held shareholdings in Graham Group of companies, companies that were associated with NAMA?

Vice Chairman

I have previously advised Mr. Daly that in respect of matters before the committee, if he gives evidence to the committee in a situation like this, he stands the risk of losing the privilege he is afforded by the committee. That is the advice of the clerk to the committee. If he wishes to answer the question, it is up to his discretion but I am advising him of the position as Chair of the committee.

Mr. Frank Daly

Let me put it this way. I am not making any allegations about anybody but can I answer factually-----

Vice Chairman

Mr. Daly may but I have given him my position.

Mr. Frank Daly

-----on the basis that correspondence published by the committee for finance and personnel in Northern Ireland in the context of its inquiry and in evidence that was given - the public transcript of which was put on that site in November but I do not have the precise date - it was alleged that a former member of the Northern Ireland committee had a shareholding in a company which was connected with NAMA at one stage. When we became aware of that, I wrote to that former member of the Northern Ireland committee on 19 November asking his view on whether this was correct and if it was correct, why he did not declare it as is required under the conflicts of interest and SIPO legislation to NAMA. That is the letter of 19 November in respect of which I sent a reminder yesterday. We have been over this ground.

Deputy Pearse Doherty

Will Mr. McDonagh comment further on the level of profitability in house building? Could it be the case that other developers who could deliver houses are sitting on land banks that have been acquired at a higher cost than those acquired by NAMA on which they are building and, therefore, their starting point, cost wise, is much higher relatively?

It is great that NAMA proposes to build units mostly in the greater Dublin area, in the docklands, etc. That is exciting for those areas, but is Mr. McDonagh satisfied that, on a regional basis, the agency is sweating all of its assets and land banks and delivering units in so far as it can on all of the property portfolios it owns in the regions?

Some 6,000 properties were offered to local authorities, of which approximately 2,500 have been taken up. Bearing in mind that Part V required 20% of a development to be set aside for social housing, although that figure has been reduced to 10%, is NAMA cognisant in the portfolios it offers to local authorities of the fact that it may offer to engage with them on the basis that if they avail of the opportunities presented, they will be significantly higher than the 20% requirement in developments that were partially completed?

Mr. Brendan McDonagh

There is a state aid complaint and we are engaging with the Commission. The complaint was formally sent to us on Monday of this week and we have a period in which to respond to the Commission which will take whatever action it wants after considering our response.

It is difficult for us to know what the land costs of other developers are because we do not have that information. However, I refer to the publicly available information from Cairn Homes plc, an Irish house builder. It has an average site cost of just over €30,000. When we look at our debtors, the site cost is not dissimilar to that figure.

With regard to the opportunities to build in the regions, if it is commercial and works, we will fund it. We have no bias towards Dublin or anywhere else. If something will work in Galway, Cork, Limerick, Waterford or any other county, we will look at it.

In terms of social housing provision, we offered up to 6,500 units and 2,500 have been accepted.

If I understood correctly, the Deputy is making the point that if the local authority and the Housing Agency, which is under the Department of the Environment, Community and Local Government, decide they want to take units, that may increase the social housing element within a scheme to more than 20%. To be clear, this is not a matter for NAMA but for the local authority and the Housing Agency. We do not decide where the units are or how many units will be taken. That is something I would expect the local authority and Housing Agency to take into account.

Vice Chairman

Before calling Deputy Tom Barry, I ask members to bear in mind that we are running behind schedule because of the vote.

Deputy Tom Barry

I welcome the delegates and thank them for their engagement with the committee. I wish to raise an issue that has been of concern to me for some time. Defining €300,000 as the price tag for a starter home seems expensive. Although we have had a recovery in recent years, I do not particularly see a huge wage recovery at present. For a lot of people, €300,000 is a high threshold to reach at this time. Mr. McDonagh gave us the very interesting information that the cost of the site in the example he gave was some €30,000, with the cost for NAMA's portfolio being similar. I am taking it, therefore, that the average cost is around €30,000, with perhaps €50,000 being the maximum.

When the delegates talk about units, I assume that involves everything from apartments to three-bedroom semi-detached houses. During the housing crisis, I approached the owner of a medium-sized construction company to ask about building costs. For an A-rated 1,000 sq. ft. house, he gave me a quotation of €110,000, which included €95,000 for the house and €15,000 for the associated works. I later spoke to a local quantity surveyor at a business meeting and he gave an estimated building cost of €1,000 per square foot, which was not far off the figure given by the builder. I am talking here about A-rated homes being constructed by a creditable and modestly sized building company. Using those figures would land the cost of a site in the €140,000 to €190,000 range. Even if we say we go to the lower end and assume a €250,000 sale price and with the caveat that I am referring to Cork rather than Dublin, there is a €100,000 gap, which is staggering, between the figures I gave and those offered by Mr. McDonagh. Is NAMA tendering out work to smaller builders? I have given the quotation I mentioned to the Minister for the Environment, Community and Local Government and the Minister for Finance and have discussed the issue with the delegates in the past. These people are there to be interrogated as to construction costs. The discrepancy in the figures is a cause for concern.

In the course of our discussion today, NAMA was likened to a housing agency. I would say it is much more like a bank. It is funding the development of Boland's Quay, for instance, and there is a lot of expertise there. I do not have a huge issue with that. Certainly, we need as many strands of funding as can possibly be made available in order to stimulate the industry.

Senator Paul Coghlan

I welcome the delegates from NAMA. Am I right to assume that anything the agency sells from now on will be in single or much smaller lots than has been the case heretofore? How is the situation resolved where there is an equality of bids? In regard to Project Eagle and so on, I will not mention any names but I am inclined to assume it was parties other than NAMA which may have sought to corrupt matters by virtue of the fact that people held themselves out as having a power, value or influence they did not, in fact, have, legally or otherwise. There is also the fact that because it was a different jurisdiction, people were inclined to assume things. A lot of it was poppycock and there was no legal basis for what was claimed. I have seen no evidence whatsoever that NAMA acted in any way incorrectly, but I would like the delegates to confirm that.

Mr. Frank Daly

I will take the last question. I reiterate that NAMA did not do anything incorrectly in regard to Project Eagle or any other sale. I will not point the finger at any particular jurisdiction but it is a feature that, from time to time, people put themselves about as having more influence or power than they really do. I was going to say we all do it, but that would be unfair. As to whether it happened in this case, I will leave members to judge for themselves. Where anybody was incorrectly putting themselves about in that position, I assure members they did not have one whit of influence, one way or the other, on the sale by NAMA of its Northern Ireland portfolio. I will not go over the details again but that is the reality.

Mr. Brendan McDonagh

In terms of lot size, we have sold some large portfolios, most of them loan portfolios. The major ones have now been done and we will be doing smaller lot sizes from here on out. We will not, for instance, be doing anything of the size of Project Arrow or Project Eagle. Instead, we expect typically to be bringing forward €250 million lot sizes or thereabouts into the future.

When it comes to evaluating bids, we try to ensure appropriate sales agents are appointed who have a duty of care to NAMA and are professional in their dealings. We want to ensure everyone gets the same opportunity based on the same information and can bid at the same time and, where there is a closed-bid process, that the bids are opened at the same time.

Our experience to date is that one never hears about 99.9% of the sales process. We are contacted about only a very small number. I fully encourage people to contact us to say they do not like the sales process, the outcome or because they suspect something has gone on. In those instances, we always investigate and ask the agent for additional details such as the marketing report, who was contacted, how many people expressed interest, what bid they put in, what day they put it in and whether their bid went to the first or second round.

Senator Paul Coghlan

If the bids were equal, would Mr. McDonagh go back to both parties?

Mr. Brendan McDonagh

Yes, we have had a number of instances recently where two people have had similar bids. We tell them to go back and decide on a best and final offer so both can put a sealed bid in. That is how it works.

Vice Chairman

Deputy O'Donnell is next. I would appreciate brevity given that we have a witness ready and waiting.

How were those that were bundled disposed of? Were they disposed of in groups of ten to 20, or 20 to 30, for example? Could I have a meaningful breakdown illustrating how the units were put on the market?

Mr. Brendan McDonagh

I do not have that information to hand but I will provide it to the committee in writing.

Vice Chairman

The clerk can distribute the responses to members.

On behalf of the joint committee, I thank all the witnesses from NAMA for participating at this meeting today and for the material they supplied to members.

Joint Committee on Finance, Public Expenditure and Reform debate - Wednesday, 16 Dec 2015

Operations and Functioning of NAMA: Discussion

Mr. Frank Daly

Mr. Brendan McDonagh

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Frank Daly

Mr. Brendan McDonagh

Mr. Brendan McDonagh

Mr. Brendan McDonagh

Ms Mary Birmingham

Ms Mary Birmingham

Mr. Brendan McDonagh

Mr. Brendan McDonagh

Mr. Brendan McDonagh

Mr. Brendan McDonagh

Mr. Brendan McDonagh

Mr. Brendan McDonagh

Mr. Brendan McDonagh

Mr. Brendan McDonagh

Mr. Brendan McDonagh

Mr. Brendan McDonagh

Mr. Brendan McDonagh

Joint Committee on Finance, Public Expenditure and Reform debate -
Wednesday, 16 Dec 2015