The National Asset Management Agency (NAMA) was warned by independent valuers that assets it controlled with a market value of €1.3m were unlikely to ever be sold for that amount or at all while threats and intimidation connected to the properties continued.
The valuers told NAMA that they would not recommend that a receiver acting for the agency should attempt to sell these assets, as they were not considered marketable.
The valuers also noted that a cash investor would be unlikely to purchase the assets and to take on potential litigation and intimidation and threats, for such a low return.
NAMA ultimately sold loans related to the assets that had a par value of €10.5m for €265,000, a 97.5% discount.
The loans were sold to a relative of the debtors and were not openly marketed prior to the sale, as normally required under NAMA's loan sale policy.
The sale resulted in NAMA incurring a loss of just under €6m.
Details of the transaction are contained in a report by the Comptroller and Auditor General (C&AG) which examined NAMA’s progress on achieving its objectives by the end of 2021.
The particular deal came to light during an audit of NAMA’s financial statements for 2021 by the C&AG.
The report found that NAMA originally acquired the loans related to two companies in 2010 at a discount of 49% on the then par value of €8.6m.
While NAMA held the loans, interest of around €1.9 million accrued and was unpaid, increasing the par value of the loans to €10.5m.
Collateral was made up of 14 occupied residential units, 28 unfinished residential units and seven plots of land totalling 20.9 hectares with varied planning status, all of which were in provincial locations in Ireland.
The debtors managed the properties until October 2018, but following the commencement of enforcement proceedings strongly resisted by the debtors, NAMA appointed a receiver over the assets.
"NAMA stated that the receiver resigned with effect from May 2020, after a potential sale of 18 unfinished houses and 3.2 hectares to a local authority fell through and he could not find a sales agent to market the properties," the report said.
The local authority had offered €265,500 for the bundle of assets.
NAMA commissioned a separate independent desktop valuation of the remaining assets which put a value of €1.3m on them.
But the valuers stated that "these values are unlikely to ever be achieved or the lands disposed of while the threats and intimidation continue," although the C&AG said no specific instances of alleged threats and intimidation were described in the valuation report.
"The valuers stated that they would not recommend that the receiver attempt to sell these assets, as they were not considered marketable," the C&AG’s report said.
"The valuers also noted that a cash investor would be unlikely to purchase these assets and to take on potential litigation and intimidation/threats, for such a low return."
A subsequent offer was made by the debtors which involved settlement of the obligations of the two companies with NAMA for €265,000.
In return NAMA was to release security over the properties.
"The sale of the loans was to a newly incorporated company that NAMA understood to be promoted and funded by a family relative of the debtors, who was not a NAMA debtor," the C&AG said.
"NAMA Board approval was sought and obtained in respect of the proposed sales terms."
The arguments made to the NAMA board by its Chief Executive and Head of Asset Management and Recovery in favour of the sale included expediency of getting the deal done and that the option was better than other alternatives because the figure matched what had been on offer from the local authority for parts of the assets and exceeded the projected net proceeds from the sale of the assets of €206,000.
The board was also told the receiver had been unable to monetise the other assets before they had resigned and that the debtor was threatening litigation to frustrate the sale.
Both of the companies which owed NAMA the money had significant negative net worth and were previously struck off.
The NAMA board approved the sale on November 19th of 2020.
By the time the loans were sold, the loan balance stood at €6.23 million.
But because there were difficulties in the case, NAMA had heavily impaired the value of the loans back to around €255,000 by 2020 and 2021.
As a result, NAMA incurred a loss of around €6m.
"NAMA has confirmed that it does not have a set process for dealing with incidents of alleged intimidation of its staff or agents, or of receiver’s staff or debtor appointed sales agents, on the basis that it is something that has arisen very rarely, and that where it has arisen, the circumstances have been very specific," the report said.
The wider C&AG report found NAMA has disposed of most of the assets it acquired as a result of loan sales or the sales of collateral assets.
It found the carrying value of NAMA debtors' loan balances had reduced to around €715 million by the end of 2021.
At the end of 2021, the projected internal rate of return on NAMA’s overall operations was around 6.7%, higher than the implied internal return rate implied in what it originally paid for loans.
At the end of 2021, the NAMA Board projected it would return a surplus of €4.3 billion upon completion of its work and in June last year it increased the projected life-time surplus to €4.5 billion.
The report also said that NAMA set a target of delivering 2,000 social housing units by the end of 2015 and by the end of 2021 it had provided a total of 2,621 units for social housing to local authorities or approved housing bodies with a further 66 units at contract stage.
It also said NAMA had set itself a challenging target to deliver 20,000 commercial residential units on sites in which it had an interest over the five-year period 2016 to 2020 but did not reach that target, achieving only 55%.
