Project Achill is comprised of assets and lands over 3.53m sq ft of commercial property and a further 1,565 residential units, 817 acres of land and 918 hotel rooms. By real estate value, Project Achill is weighted Dublin, 46.9%, Northern Ireland, 26.3%, Rest of Republic of Ireland, 9.5%, England, 9.3%, Scotland, 7.6%, Other, 0.4%.
This sale is similar to the recent sales
of loans by NAMA and IBRC which were bought by US vulture funds Cerberus
Capital management, Goldman Sachs and CarVal Real Estate Investment company. Typically what has been happening in Ireland
over the past twenty four months is that the US vulture fund are paying in some
instances as low as 10c in the € for these loans with the view to getting a
very strong return over a relatively short space of time. Not a bad deal if you
could get a piece of the action.
Where
does this sale leave the borrowers?
We have seen previous vulture funds take
a cold clinical approach to realising their new acquisitions. The Vulture funds
are driven by profit like any business and therefore any borrower wishing to
retain their assets will have to be savvy and intelligent enough to demonstrate
that by working with the borrower the (Vulture fund) they will get more profit
back. This is not an ideal process for a recovering economy, and in many cases
it won’t be a pleasant process for the borrowers many of whom will have viable
businesses and will need to negotiate with the fund and have their “A” game in
place. With change there is opportunity and therefore potential for adding
value to your business, however borrowers will need to act quickly in order to
get the best deal possible and survive.
What
actually happens?
The fund / investors write the cheque
for the loan and subsequently contract the servicing of the loans to debt
servicing companies like Pepper Finance or Capita to name two. They will then write out to the borrowers and
invite proposals to pay down the debt.
The debt servicing company will then make a recommendation to their client
in terms of the next steps. The trend in
this country to date is that they appear to favour the road of enforcement, get
full control of the assets and then work to a business plan. If you were writing a cheque for £1bn then
you would likely do the same, unless you are in receipt of fairly innovative
and strong business proposals..
What
should borrowers do?
The borrower needs to be ready to engage
with the new lender and have a plan / strategy in place. To do this in most cases the borrower
will have to have access to new finance if they are to have any chance of
retaining ownership of the assets. The
new owners of the debt will not be here to procrastinate. They will work to a very tight 3/5 year business
plan for the most part, with their main aim being threefold 1) profit 2) profit
and 3) profit.
In the last month our own practice has
launched a new £50m fund, which was set up to assist borrowers unlock exactly
the sort of positions being created by project Achill. If you need some more information on this,
please give us a call. Whether it be
with us or someone else, access to new finance is the name of the game.
So
what next for Ulster Bank?
Ulster bank has experienced its fair
share of problems like a lot of the banks in the last few years. Their policy has changed several times and
being objective as possible it would be fair to say that their conduct and
policy changes have been somewhat erratic.
What has happened in the last 12/18 months is that RBS are tightening
the screw on the bank. We all now know that
Ulster has lost the RBS group billions of pounds as a result of the property
crash, and it has also caused serious other stresses and pressure points within
the group. In the last few months they
have got rid of West Register, the infamous property development wing of the
bank and they have also rebranded the highly controversial and unsuccessful global
restructuring division, which now trades under RBS RCR Ireland.
We were advised last year that the bank
was moving towards a more aggressive stance in dealing with their toxic
property book and this development with Project Achill demonstrates exactly
where they are now and what they are trying to achieve.
Some may see this loan sale as another signal
of the impending exit of Ulster Bank from Ireland. Already some of the media are speculating
today that this loan sale may be linked to the failed merger with PTSB which
came up in the press recently. Some suggesting
that post this clear out, the merger may be back on. Let’s wait and see what develops.
Although Ulster Bank is far from
currently functioning as a normal Bank; its exit from the market could be bad
for the long term economy in Ireland. A healthy economy needs strong
competition between Banks who compete for customers, lending at competitive
rates.
The only conclusion anyone could arrive
at today regarding Ulster Banks future in Ireland is that it is less than
certain. It’s clear that RBS are trying
to offload, however for the moment, there are no takers.
It’s certainly a very interesting
development and we all watch this space with interest.
Conor Devine MRICS
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