Market recovery

A major contributory factor to NAMA’s progress in 2014 was an unprecedented level of demand and activity in the Irish commercial property market. This enabled us to authorise a significant increase in the flow of Irish assets offered for sale by our debtors and receivers. We generated total cash of €8.6 billion in 2014, almost twice the amount generated in 2013. A total of €7.8 billion was generated by asset disposals, including €3.7 billion from the disposal of Irish assets. By contrast, in the years between 2010 and 2013, Irish asset sales had generated a total of €1.8 billion for NAMA – this reflects our reluctance, during these years, to approve the sale of Irish assets in a thin, illiquid market at what we considered to be sub-optimal prices.

The strong recovery in the Irish market in 2014 and the fact that yields for certain asset classes reverted towards pre-crisis levels created opportunities for NAMA to increase the flow of assets offered for sale. Overall, the volume of activity in the Irish investment property market in 2014 is estimated to have exceeded €4.5 billion - over twice the level of activity in 2013 and well in excess of the previous peak of €3.5 billion achieved in 2006. There were a number of factors which gave rise to this buoyancy: the increased attractiveness of Ireland to investors following Ireland’s exit from the Troika programme; the greater appeal of property assets in the context of an economic recovery which was gaining momentum in 2014; the attractive yields offered by Irish commercial real estate assets at a time when yields on many other asset classes had fallen to very low levels and, not least, the re-emergence of interest from domestic investors. NAMA made a notable contribution towards meeting investor demand for Irish assets: its major asset portfolio sales including a number of office portfolios in Dublin (Project Redwood and the Central Park complex), a Dublin residential portfolio (Project Orange) and two retail portfolios (Project Acorn, Project Parks).

A significant development in the Irish market in 2014 was the major upsurge in loan sales – it is estimated that over €22 billion of loans were sold by Irish vendors, including NAMA, in 2014. The principal NAMA loan sales included Project Eagle (loans secured by assets controlled by Northern Ireland debtors), Project Tower (loans secured by investment and developments assets, mainly in Ireland, Britain and Germany) and Project Holly and Project Spring (both of which were secured largely by commercial and development assets in Ireland). NAMA will continue to ensure that a strong flow of asset and loan portfolios will be offered to the market during the course of 2015, assuming that market conditions continue to support larger transactions.

NAMA continues to generate significant cash through disposal activity and non-disposal income. As of end-March 2015, total cash generated since inception had reached €25 billion, of which €19.9 billion related to asset disposals and €5.1 billion to other income, mainly rental receipts from properties controlled by debtors and receivers.

Challenges

The fact that NAMA made such major progress on a number of key objectives in 2014 does not mean that there is any room for complacency in terms of the remaining challenges ahead. Current benign market conditions cannot be taken for granted and it is our job to take advantage of them to the greatest extent possible while they exist. As of end-March 2015, we had a residual amount of €12.6 billion of Senior Bonds still to be redeemed in addition to €1.6 billion of subordinated debt. Our current projections suggest that, assuming that market conditions remain accommodating, we will have redeemed all of the Senior Bonds by 2018. We also hope to be in a position to return a surplus to the Exchequer by the time we complete our work.

Staff retention

The single most important factor which will determine whether NAMA ultimately achieves its objectives will be its ability to manage its staffing requirements over the coming years. On the one hand, we still have major challenges ahead and we will need to retain key staff with the expertise and the experience necessary to confront those challenges. On the other hand, NAMA is in accelerated wind-down mode and it would be entirely understandable if our staff – who are almost all on specified purpose contracts – left to take up permanent and better remunerated positions elsewhere.

In my remarks in both the 2012 and 2013 Annual Reports, I expressed concern at the impact on NAMA of the public sector remuneration adjustments which were introduced in 2013 and the associated implications for NAMA’s ability to retain staff with the appropriate skillsets and experience to manage its portfolio. During the course of 2014, some 67 staff left NAMA – 20% of the headcount as at the beginning of the year. As the year progressed, the issue of key staff retention became more acute, particularly in the context of the Board’s accelerated disposal and bond redemption strategies and its ancillary Dublin Docklands SDZ and residential delivery strategies. The risk was highlighted in the Minister’s Section 227 review of NAMA which stated that “any proposal that would help to safeguard NAMA’s operational capacity and staffing expertise should receive careful consideration in light of potentially significant value implications associated with losing key employees”.

In January 2015, I outlined to NAMA staff the key elements of a redundancy programme that would see NAMA reducing its headcount by 78 at the end of 2015 and by another 167 staff at the end of 2016. Subsequently, in March 2015, the Minister announced that, arising from his discussions with the NAMA Board, appropriate staff retention measures would be put in place to protect the financial performance of NAMA. He indicated that the overall costs of any redundancy scheme, including statutory redundancy, would be not more than €20m. I am hopeful that these measures will enable us to manage our staffing requirements so as to ensure that there will be no adverse impact on our ability to deliver on our various objectives.

To conclude, I wish to acknowledge the major commitment and effort of the Board, the Board Committees, the Executive team, the staff assigned to NAMA and also to those within the wider NTMA who contributed to the enormous progress made in 2014. We look forward in 2015 to maintaining a strong momentum towards achieving our key strategic objectives.