On 15 November the winners of the ‘Space Invaders Dublin’ competition to redevelop a vacant lot on Thomas Streets were announced. According to the Irish Times, the winning proposal offered “a mixed-use development with a large digital wall at the centre of an open space on the site which will be a tourist attraction in itself and also a showcase for companies using it”.

In the same article , it was announced that the Digital Hub Development Agency, the state agency which owns the vacant site, is considering “allowing artists and cultural bodies to use existing derelict buildings on the site to help regenerate the area”. Ronan Tynan*, property manager for the Digital Hub noted that “We are trying to get something together to get us to the next stage if parties are interested in using it, but there is a cost for even temporary use. We’ve got to see if it is feasible money wise.”

The interesting point illustrated here is the desire to use artists and cultural groups to help redevelop a site. It is noted that the currently derelict buildings which have no heating, water or lighting would require a lot of work to provide even a “basic level of services” and that there would be a cost for even temporary use- though it is not clear how this cost would be shared between the Digital Hub and the user groups.

It is unclear if users will be expected to pay a rent, but the intention remains: to use groups known to be under-resourced to inhabit and work in spaces with a basic level of services in order to add value to a site. The arts and cultural groups will be facilitated until they have added enough value to the site, they will then be replaced, likely, by higher-end and more profitable uses.

That this process is allowed to be presented as an act of altruism towards arts and cultural groups rather than the act of exploitation is telling of the scarce opportunities available to these groups, as well as the uncritical eye through which the media views urban redevelopment. In my thesis ‘Crises without Retail: A Street Level Approach to a Global System‘, among other approaches I examined the role that temporary uses have played in efforts to relieve vacancy was. From that research I found a popular association between arts and cultural groups utilising derelict or unused spaces. Such an arrangement gives these groups a space to work and organise from, which they may not be able to acquire conventionally. Traditionally, where capitalism cannot find a profitable use for a space, it lets it depreciate until the rent gap widens or more profitable markets saturate and the space can be traded or developed. This process can be accelerated by managing the organic response arts and cultural groups have to seek out space with a low exchange value, but still with a feasible use value.

In valuing space based on use value and with little ability to acquire space based on exchange value, abandoned or dilapidated spaces are often sought by arts and cultural groups and their use tolerated or even facilitated by land owners or city authorities. The problem is that the work of artistic and cultural groups is rightly valued by people when choosing where to live, and as these types of uses grow in an area the opportunity for gentrification ripens. With this the possibility of displacement for the arts and cultural groups as well as other residents looms.

A difficulty in critically exploring the dynamics of temporary use (see the discussions over Granby Park previously presented on this blog) is the amount of good will that often features. To help understand the actions of the relevant actors it is helpful to distinguish between ‘consent’ and ‘compliance’ with the underlying processes of urban development and the wider system of capitalism.

Where land owners concede to discounts and alternative uses due to having their property vacant they are helping arts and cultural groups as well as offering residents a new amenity. Despite this they are still compliant with the same system that made their property empty and makes access to space for arts and cultural uses infeasible in the first place.

The arts and cultural groups who accept and seek out temporary uses are compliant too, once the space they are offered is prime for redevelopment they will have to leave and the ability of other residents to stay will also be threatened –  this they do not consent to. Though arts and cultural groups would prefer more secure and more purposely designed spaces to work in, these are not always available so they take what they can get. Where these groups once sought alternative uses for abandoned spaces they are now offered, sometimes at a cost, the use of spaces explicitly as part of a redevelopment strategy that may lead to displacement.

Those who are both compliant and consenting are another story. The plan to provide temporary spaces to arts and cultural users on the lands of the Digital Hub, allowed to remain derelict while in the ownership of the state for 12 years, and the media that presents such an act as gracious are more clear cut players.

The arts and cultural sector need real supports and sustained access to purposely designed spaces and it is important that that is made clear to those with the power to provide those spaces. The incorporation of temporary uses or alternative uses of spaces as part of the development process is testament to the value arts and cultural uses provide. At the same time, people who live in an area and add value to it through the community they build also deserve protection from gentrification aided by the latter uses. But the nature of value has been so disturbed that those who add value to places and spaces are not rewarded, but instead are expected to be grateful for the privilege of helping others make money and in keeping a system that devalues them working.

*An attempt was made to contact Ronan Tynan via the Digital Hub, seeking more information on any plans for temporary uses, with no reply.

Liam Duffy recently graduated from the 4Cities UNICA Euromaster in Urban Studies. His interests include retail planning, urban economic policy, brownfield development as well as arts and cultural policy. He is currently in Copenhagen and looking for employment and other opportunities in Denmark and further afield. He can be contacted at Lmtduffy@gmail.com


Dublin’s fifth office development boom reached its peak during 2009 marked by the completion of over 172,000 sq.m. of space, a 4 per cent increase on the previous year. In fact, this was the third highest recorded quantity of space to be developed in a single year, outstripped only by 2001 (263,870 sq.m.) and 2002 (177,800 sq.m.).

More than half of that new space was located in suburbia.

However, it is clear that the figure for 2010 will be significantly lower than for 2009, probably at around 100,000 sq.m., a reduction of some 40 per cent on last year, marking the end of the boom.

An interesting feature of recent developments was the increasing scale of individual schemes. Fifteen developments completed between early 2007 and late 2009 each accommodated over 10,000 sq.m. of floorspace. Together, they added over 260,000 sq.m. to the city’s office stock, a figure which equals the total of all the 85 developments completed between 1960 and 1972.

This increasing scale of schemes is reflected in the tendency for the number of development schemes to diminish over recent years. The figure shows that while the number of schemes reaching completion has reduced during the 2000s, the quantity of floorspace being developed remained high.

Thus, the average size of development due for completion in 2010 is 11,200 sq.m. compared to 2,513 sq.m. in 2001, a figure which differs little from the average development size in 1981 (2,364 sq.m.) or 1991 (2,709 sq.m.).

This increasing scale was in part a response to the increasing demand by certain companies for larger office units. For example, during 2006 there had been over 50 transactions each involving more than 1,000 sq.m. of office space. However, the increasing scale is also a clear indication of the growing confidence and the greater risks that developers and their financial backers were prepared to take as the market heated up. In 2009, only 14 transactions concerned take-up greater than 1,000 sq.m..

The development boom since 1995 has dramatically altered the geography of Dublin’s office stock. While in 1995 only 14 per cent of the stock was suburban, this had increased to 35 per cent by the end of 2009. Meanwhile, the proportion located in Dublin 2 fell from 54 per cent to 32 per cent.

Again, the willingness of developers and their financier to countenance locations outside the prime office core is a reflection of their confidence in the office boom in addition to the growing demand for space in more marginal locations.

In fact, the demand for space kept up relatively well through the period of the fourth and fifth development booms, reaching a peak in 2007 when 297,240 sq.m. was taken up.

Thereafter, take-up reduced dramatically and, in 2009, just 72,000 sq.m. was taken up, marking a 66 per cent reduction on the figure for 2008 and less than a quarter of the demand recorded in 2007.

Perhaps surprisingly, suburban take-up (at 42 per cent of the total) actually held up rather better than elsewhere, the figure exceeding what could be expected from the proportion of the total stock located there (36 per cent).

Nevertheless, the scale of completions in 2009 far outstripped demand.

Inevitably, vacancy levels rose. By the end of 2009, over 670,000 sq.m. of office space lay vacant. This figure was greater than the total stock of office space in 1980. It represents nine years of supply at 2009 take-up rates and, at prevailing occupancy rates, could accommodate some 33,500 staff.

Another way of conceptualising the scale of this vacancy is that it is equivalent to the amount of office space in 206 Liberty Halls.

About half of the total (53 per cent) lay in newly-completed buildings. Some 423,000 sq.m. (63 per cent of the total) had been vacant for more than twelve months.

Thus, from a historically very low vacancy rate which was recorded at 1.9 per cent in December 1999, the rate rose to 11.8 per cent by late 2001, then to 13.4 per cent in December 2007, to 15.7 per cent by the end of the following year and stood at 21.1 per cent in December 2009.

However, the citywide vacancy rate hides a number of interesting spatial variations.

Suburban vacancy accounts for half of the empty space in Dublin and the vacancy rate is suburbia is 30 per cent.

But the geographical variations in vacancy which typified recent years, with generally low inner-city rates and high rates of suburban vacancy, have also altered somewhat.

These have changed with geographical shifts in development activity (completions), the release of older space onto the market and changing patterns of take-up.

In the inner city, vacancy remains low in the International Financial Services Centre (IFSC). Indeed, this was the only office zone to register a reduction in its vacancy rate in 2009.

Vacancy in Dublin 2 rose to 15.5 per cent, to exceed the vacancy rate prevailing in the inner office fringe (Dublin 1, 7 and 8). This was occasioned by the release of older space and the completion of some large developments in the docklands.

Dublin 4 has also been typified by a rapid rise in its vacancy rate to 25 per cent, again due in large part by the completion of large new developments where 70 per cent of its vacant stock is located.

In suburbia, vacancy rates rose in all locations. Most noteworthy has been the increasing rate of vacancy in the north suburbs where 44,000 sq.m. was developed in 2008-9, the vacancy rate rising from 28 per cent at the end of 2007 to 46.5 per cent in December 2009.

A review of the location of floorspace that was vacant for over 12 months at the end of 2009 reveals the difficulty of finding occupiers for space in the western suburbs, in the inner-city fringe (Dublin 1, 7 and8) and for older space in Blackrock-Dun Laoghaire.

Indeed, a significant quantity of space in the western suburbs had been vacant for more than five years.

Andrew MacLaran

As a grand urban project Cork Docklands has certainly had its share of problems.  Managed by City Council in lieu of devolving responsibility to a separate authority like the DDDA, the process has been one of slow evolution, as the local authority within their limited powers attempted to stimulate developer interest, steer existing landowners towards considering redevelopment, and keep the project a priority within national capital funding streams, all the while adhering to best-practice in international planning standards.  Iconic tasters like the City Quarter Development on Lapps Quay and the Elysian offered appetisers for the banquet that was to come when the area twice the size of the city centre would be redeveloped.

Howard Holdings City Quarter Development on Lapps Quay

By 2008, it looked like the main course was about to be served when a number of large sites were lined up within various stages of the planning process, most notably Howard Holdings Atlantic Quarter that was set to become the lynchpin of the entire project.  Gradually the major players had lined up behind the plan.  But just as the steel and concrete of these sites was about to turn the ethereal work of the planning authority into something rigid and fixed, the gathering black cloud of recession cleared the playing field and scattered all betters to their proverbial hedges.  The Docklands project went from being a question of ‘when’ to again being a question of ‘if’.

One of the biggest problems facing the project was Central Government’s unwillingness to unambiguously commit to funding the infrastructural provision needed for upgrading the waterfront.  On the surface, Central Government have always claimed that Cork Docklands is a policy priority with their full support and backing.  However, this commitment has yet to translate into budgetary provision making the capital needed available to Cork City Council.  Such a scenario continues unabated.  Speaking recently about the lack of provision for Cork Docklands within the Government’s infrastructural investment programme, Minister for Education Batt O’ Keeffe suggested that

“There’s no point in me making predictions but the Government is committed to the Cork Docklands. It’s an issue we will be discussing at Cabinet in early September and you can be sure that Micheál Martin and myself will be to the fore ensuring Cork gets its fair share.”

Despite the less than certain assurances of capital investment, developers such as Greg Coughlan of Howard Holdings’ were confident enough in the project to invest millions in assembling sites and enlisting architects and consultants to construct lavish plans and hyperbolic promotional videos.

Artist Impression of Howard Holdings proposed Atlantic Quarter Development

Coughlan is currently facing jail for contempt of court for failing to supply a statement of his assets to investors pursuing him for €28.1 million for loans relating to a Polish development.  On the front of the Irish Examiner a few months ago, this news was presented next to that of planning permission being granted (though not funding committed) for two new bridges in the docklands, part of the irony being that Coughlan’s Atlantic Quarter development was one of those set to benefit most from these new river crossings.

Thus it seemed as if Cork Docklands had anchored in a kind of development limbo.  The plan had been rolled out to such an extent that it wasn’t going to just disappear into thin air.  The Dockland project exists, has been made to exist over the last decade through a few plans and strategies, hundreds of newspaper articles and speeches, countless conversations, negotiations, and schemes, and a couple of prominent developments.  At the same time the financial crisis was sucking the Irish property market into a sink hole, the gaping hole in the Irish banks and the staggering levels of vacancy and oversupply putting a more or less abrupt end to new development.  It seemed like something as ambitious as the scale of Cork’s Docklands project wouldn’t be enlisting any cranes for a while.

But recently Cork has again begun to rumble with the promise of new projects to replace those that have stalled.  In light of the sudden absence of the events centre first intended for Mahon Point and subsequently as part of Atlantic Quarter, Owen O’ Callaghan has recently slated plans to build a 5,000 seat venue in a development on Albert Quay.  In the same week as O’ Callaghan’s plans were announced, An Bord Pleanála ruled against Origin Enterprises 11-storey office-based development on Kennedy Quay (Irish Examiner). 

The most extravagant of these plans is Gerry Wycherley’s €750 million planning application to redevelop the Marina Commercial Park (MCP).  The proposed development features more than 800 apartments, providing homes for up to 2,230 people, a marina where they can park their boats (you’ve just got to love that feature), a range of community amenities, a visitor and science centre, the Ford Experience, which is expected to attract up to 300,000 visitors annually, and a new central plaza to provide a hub for the community, including a creche and library.  The aims are ambitious.   As suggested by the Cork Independent, the “planning application aims to transform the 24-acre, MCP into a vibrant, socially inclusive community within the City’s south docklands, where people will live, work and play, creating 1,200 jobs in the process”.  An article in the Irish Independent rather grandly suggested that “Cork is to defy the recession by pushing ahead…” with the project.

Artist Impression of Wycherley's plans for MCP

But at the same time these rumblings on the waterfront could be as far away from becoming a reality as Brando’s mumbled dreams of being a contender.  Wycherley’s proposal comes with a series of caveats.   He lists three factors “outside of [the company’s] control” that need to happen before they can move on the project.

“Firstly, we don’t know how long the planning application will take to process. There is no reason why it wouldn’t get planning permission as we’re compliant with everything but we don’t know how long it will take. Secondly, there is a serious infrastructure deficit at the moment. Centre Park road will have to be raised at least three metres as well as improving transport links between the site and the city centre. Finally, even if the other two were there in the morning, we couldn’t do anything because the market isn’t there. It would be commercial suicide to move on this without the market but we need to have everything ready and in place for when the market turns.”

All in all these conditions are pretty significant ones, which at heart expose how much the property market in Ireland has changed in the last two years.  Wycherley is hedging his bets on all counts.  The application is essentially suggesting what could happen with the site and certainly not what will happen.  It is no longer a case that Government capital expenditure can in any way be assumed to be forthcoming.  The Government’s precarious backing of the Cork Docklands project is now even less assured given the chronic hole in the public finances.  Just as significant is the fact that there can no longer be assumed that there is a market for commercial and especially residential property in Ireland.  In essence Wycherley’s proposal is saying what could happen in an alternative reality where the Irish Government had money and the property boom was still booming.  While he is certainly cognisant of these factors, there is still a hint of the blind Celtic Tiger confidence in the way the project is talked up.  He suggests that “Obviously, at the moment, the residential market has bombed so we won’t start building the residential part of the project until there is a clear demand and we can move units. But I’m confident that the market will pick up. The demographics are good in that regard”.  The rationale behind such good demographic projections, however, remains patently unclear.  For Cork City Council the announcement of the project is clearly positive in that it keeps the Docklands within the public eye and provides them with a more tangible bargaining tool to lobby Central Government for capital funding.  If the proposal is in line with the planning regulations for the site (which the developer claims it is) they will grant it planning permission. Yet there is something illusory about all of this which begs the question as to what planning permission actually means in an Ireland after NAMA.  Clearly from his own admission Wycherley has no intention of starting development on the site immediately, nor in any defined time period.

Perhaps lustrous plans like these are means of looking sharp for upcoming NAMA nuptials, a pretty peacock’s plumage to appease and please the prospective mate.  Because in most cases it is now NAMA that hold the power over Ireland’s urban future.  For sites to go into development the final say rests not with the developer or with the local authority, but with NAMA.  How exactly this new arrangement will pan out will decide a lot about the future of the country.

As for Cork Docklands, the project will undoubtedly soldier on, this latest episode one more in a its storied evolution.  While proposals like this one can provide media fodder that keeps Cork’s ambitions of density and sustainability front and centre in a news nation characterised by misery and miasma, it is important not to get caught up again in the tornado of excess that characterised the Celtic Tiger.  Cork’s fastidious record of strategic planning may have had the outcome of some developments receiving an unfortunately anti-climatic opening, but this culture should be retained in the face of less optimistic times.  What is important now may not be the grand statement but ensuring that when development happens it is to a scale appropriate to encourage sustainable growth.

Cian O’ Callaghan

In recent days two conflicting reports have emerged as to the health of the Irish residential property market.

According to the Irish Independent, one of the two Irish home-registration firms, Premier Guarantee, did not register a single house in January. Premier Guarantee’s larger rival, Homebond, only registered 149 houses in January, including just 24 in Dublin.  At the peak of the property market in 2006, Homebond was registering 6,122 houses a month or about 72,000 in a full year. Premier, the smaller of the two registration services, was registering about 2,117 houses per month, or almost 25,000 per annum. Of the 149 houses registered with Homebond in January, 62 were in Cork, 16 in Kildare and 24 in Dublin. In most of the other counties there were less than three houses registered, with many counties only registering a single house. Premier Guarantee and Homebond provide structural defect cover for new homes in the first 10 years after construction. The number of new homes registered with these firms is regarded as a reliable indicator of Irish housing starts.

However, data emanating from Property website Myhome.ie identifies a threefold increase in the number of ‘sale agreed’ second-hand homes in January compared to the same time last year. According to Myhome.ie, 658 properties reaching sale agreed status in Dublin last month compared with just over 200 in January 2009. Similar trends were seen in Kildare, Wicklow and Meath.

These conflicting reports raise a number of questions about the underlying trends at play in the Irish residential property market. The Myhome.ie data may be capturing some pent-up demand among a cohort of buyers, who are eager to snap up what they perceive as bargains in the Greater Dublin Area. If so, is it only a matter of time before this pent-up demand is expended? In that case, is the Myhome.ie data indicative of a dreaded “dead cat bounce”, prior to a prolonged property market slump? Even if Myhome.ie has uncovered positive property trends in Dublin, Kildare, Wicklow and Meath, the residential property market outside of Leinster may be in a far worse condition than the Myhome.ie figures suggest.

One may be tempted to withhold judgement until a detailed property price index is released. This may take longer than expected:  the Permanent TSB / ESRI House Price Index  will now be issued on a quarterly basis rather than the current monthly format. The reason cited for this? low sample size.

Declan Curran

International evidence (World Bank and Financial Stability Institute) shows that for NAMA-style agencies engaged in either rapid disposal of assets or managing impaired assets to enjoy even limited success, a confluence of benign conditions is required. In the case of both rapid asset disposition agencies (Mexico, Spain, USA, China, Korea, Malaysia) and restructuring agencies (Finland, Sweden, Japan), the crucial factor required for a favourable outcome is a strong recovery, both in the property market and the wider economy.  Other favourable factors include (more…)

The chief executive of the National Asset Management Agency, Brendan McDonagh, has stated that the organisation would be adopting a ‘hard nosed” approach in dealing with major borrowers. Apparently, work has already been completed on the top ten borrowers in the country who had the most complex loans with multiple institutions and, in Mr. McDonagh’s words, NAMA has held ‘open and frank’ discussions with members of the construction industry. But what do we know of NAMA’s approach to dealing with the banks  availing of the scheme? (more…)

Amid the carnage of yesterday’s budget Brian Lenihan suggested that among the key priorities for government investment in 2010 would be housing and urban regeneration.  Given Fianna Fáil’s recovery measures so far exemplified by NAMA, it is probably that the rationale for this statement is more in keeping with attempts to save the property industry than it is geared towards dealing with issues of poverty and disadvantage.

Currently the largest such project on the cards is that of Limerick Regeneration (www.limerickregeneration.com).  The flagship initiative to regenerate a number of estates in Limerick characterised by acute social problems which was launched in 2008, has (apart from some demolition work) been relatively low-profile in media and political circles for the last year.  The project, in keeping with the state’s policies for regeneration over the last decade, was to be rolled out through a public-private partnership model.  As such, it has always been dependent on the construction and sale of a significant proportion of additional private housing units to fund the replacement of social housing along with a series of environmentally and socially oriented projects. In one of the estates, Moyross, for example an even 50/50 split between 970 replacement social housing units and 970 additional private units was envisioned.  Even during the boom PPP regeneration strategies have frequently led to the sidelining of the interests of existing communities in favour of catering to the interests of private profits for developers.  John Bissett’s work on regeneration in St. Michael’s estate, for example, suggests that residents’ priorities were consistently marginalised as the PPP sought to build private apartments on the site.  With this in mind, it raises serious questions about the future of Limerick Regeneration in the context of the property crash: firstly, whether this private sector funding would be forthcoming at all, and secondly whether it would be desirably if it did, given what must now be an even more conservative property investment climate?  Are all socially oriented goals now going to be dropped in order to retain the bottom line priority of NAMA to re-inflate the property bubble?

Last Sunday Limerick TD and Minister for Defence Willie O’ Dea published a commentary piece in the Sunday Independent on the future of the project.  In a spiel typical of FF, O’ Dea made an optimistic and confident pose while offering very little in terms of actual policy commitments.  Apart from listing some of the history of the estates and reiterating the major focus of the original plans, O’ Dea spends much of the piece talking the positive impacts it has already had on in terms of community building and the external image of the areas.  He suggests:

“The regeneration project is far from over, but already one can sense the growth of community spirit and pride in Moyross. Where once my weekly clinic was filled with people seeking out of Moyross, I am now getting queries from couples and families looking to move into the area. They see that the situation in Moyross has not just stabilised, but the community spirit that usually takes decades to develop is already coming to the fore”

While these improvements to community wellbeing are obviously positive they  should be seen only as early indications of success in what must be a long-term and complex set of processes, investments and policy actions necessary to deal with existing social problems in these areas cultivated by years of neglect.  They should not be seen as an end in themselves.  Like Brian Lenihan’s glib comments yesterday that the country had “turned the corner” while no evidence suggests that it has, this rhetoric promises change without providing anything in the line of reform.

Cian O’ Callaghan

A striking feature of the official NAMA documentation and subsequent commentary is its lack of attention to geographic or spatial considerations. Indeed, this tendency of ‘aspatial’ analysis has also been a key feature of banking and financial operations, where property assets, which exist in physical space and have a specific geographic location, are presented in numerical form (often aggregated) on loan books, on balance sheets and indeed as part of complex asset bundles, such as CDOs (collatoralised debt obligations). Such an understanding and presentation of data serves very much to conceal the geography of those assets.

During the boom, financial institutions massively expanded their total lending and, as we know, what characterises the Irish banking system (and crisis), is that much of the lending went into property, which has a very particular geography. And, given the general tendency of property developers and investors to engage in developments in increasingly riskier locations the longer the boom goes on, and the considerable property price inflation that occured in every region in Ireland, it was the overlooking of geographical considerations that facilitated further inflation of the asset bubble.

That push to boost lending and increase the profitability of banks seemed to pay little attention to broader indicators in the Irish economy but also failed to pay due cognisance to locational considerations. In an industry in which the three rubric for success have long been recognied as “location, location and location”, such overlooking of spatial considerations is nothing short of amazing.

The very viability of NAMA as a financial project is highly dependent on the geography of those property assets which underpin the loans which NAMA is purchasing. While certain well-located assets may indeed provide for a secure yield in the medium term, others, such as large sites lacking any urban zoning status located at the edge of small Irish towns and villages for which enormous prices were paid per hectare, are unlikely even in the very long term to prove to possess much value above that of farmland.

Approaching the ‘details’ of NAMA and applying sectoral and geographical scenarios
From the NAMA Draft Business Plan, one can ascertain the broad composition of the loans. Of the total amount of €77bn of loans being transferred to NAMA from banks’ asset sheets:
• €27.8bn (36%) relates to ‘land’
• €21.8bn (28%) relates to ‘development loans’
• €27.7bn (36%) relates to ‘associated loans’
Beyond that broad breakdown, there is little information on when the loans were granted, on the type of property to which the loans relate (residential, office, retail, industrial, etc.) and on the geography of the assets.

To date, the total extent of our knowledge of the ‘geography’ of those loans is provided only by a very broad break-down between international locations. But in a sector in which a matter of 40 or 50 metres distance between sites might mean the difference between success and failure in the case of urban redevelopment projects, particularly in office development markets, such crude delimitation is almost entirely unhelpful. Unfortunately, we know too little about the location of NAMA-related property for an accurate assessment to be made as to their likely real value.
Some €33.13bn of those loans relate to properties located in the Republic of Ireland. However, an appraisal of the real value of the underlying assets requires, in the case of loans against land, a review of the geographical location, zoning characteristics and planning status. For development loans, an evaluation needs to be undertaken of the sectoral status (residential, industrial, office, retail and other commercial) of schemes within a local context in which the current level of provision of such property is taken into account, together with considerations of existing vacancy rates, the projected scale and stage of development (completions, currently on-site or due to be undertaken), and the prevailing and projected scales of demand for such space.
As laid out in the draft NAMA business plan, NAMA will pay €54bn for loans with a book value of €77bn, representing a 30% “haircut” on the original loans’ value. While NAMA will pay 15% above the estimated current market value for the assets, it does so on the basis that the total reduction in average property prices in the boom-slump cycle is 47% (the peak having occured in early 2007 and the trough estimated to have occured in September 2009) and that the 15% premium can be recouped over the lifetime of NAMA through a rising property market.
While we do not have specific information on the geographical location of the assets that are to be transferred to NAMA, we can examine some recent trends in the property market and compare them to the assumptions underpinning NAMA.

The Agricultural Land-Price Spiral
What became clear during the boom years was that a very sharp increase in land prices was occuring, not just in and near urban areas but also in rural areas – agricultural land. According to SavillsHOK’s Irish Agricultural Land Research report in May 2007, Irish land values jumped from just under €10,000 per hectare in 1998 to over €58,400 per hectare in 2006, by far the highest price per hectare in Europe. This jump in part reflected the tendency for farmers to sell small plots of land for development purposes (one-off housing) and an increasing trend of wealthy individuals buying small farms for lifestyle purposes, particularly within commuting distance of Dublin. In many cases, the proceeds from land sales was re-invested in farmland, where farmers with land at the edge of towns sold them off during the boom times and bought farms elsewhere pushing up land prices even further and becoming even more out-of-kilter with the day-to-day economics of farming. With the onset of the property crash, agricultural land prices have and will continue to fall back sharply, with those greenfield sites at the edge of towns bought with redevelopment in mind, open to devaluations in the region of 90-95%.

Record Site Prices (see google map)
If we examine some of the record prices paid for redevelopment sites in urban areas at the height of the boom, and compare them to revaluations on other similar sites during the slump, it should give us some indication as to the real extent of price falls.
In late 2005, a number of significant site sales in the prestigious area of Ballsbridge in Dublin 4 attracted considerable attention. During this period, the developer Sean Dunne bought two sites, the former Jury’s Hotel and the former Berkeley Court Hotel, 7 acres in total for ca. €379M (€54.1M per acre). Another developer, Ray Grehan of Glenkerrin Homes bought a nearby 2.05 acre site, the former UCD Veterinary College for ca. €171.5M (an incredible €83.7M per acre). In 2006, a small site of just over a third of an acre went for almost €40M (€95M per acre). These were purchases that were made close to the height of the boom for potential redevelopment sites which had no planning permission. Even if the subsequently proposed mixed-use developments had been given planning permission and had they been completed at the height of the property boom, the margins for profitability were already stretched. So what scale of price devaluations could we expect in the property crash for these sites?
Take the example of a nearby 0.5 acre site on Herbert Road, Ballsbridge; this former Cablelink office-building was offered for sale in autumn 2007 for €30M, just after the peak of the property boom. Two years later, the asking price stood at €9.5M – a 68% decrease, and that’s just the asking price!

As already mentioned on this blog, the case of the Irish Glass Bottle site in Ringsend is instructive. This 24.9 acre site, purchased in early 2007 for ca. €413M (€16.6M per acre) by a consortium involving companies of Bernard McNamara and Derek Quinlan and the Dublin Docklands Development Authority (DDDA), was revalued in October 2009 at €60M. This represents a whopping 85% price devaluation, which is way above the “haircut” of 30% or the 47% average property price fall upon which NAMA’s calculations are based. In the case of the Irish Glass Bottle site, we are talking about a large centrally-located brownfield site with special planning status for mixed use (residential and enterprise) functions under the DDDA’s Master Plan, with reasonably good prospects of redevelopment in the medium-to-longer term. Yet, this site has retained only 15% of its market-peak value. This begs the question, if such well-located sites are experiencing such colossal price falls, then what are the prospects for greenfield sites at the edge of cities or at the edge of towns throughout Ireland?

Investigating Development Loans – The changing geography of Dublin’s office stock
Presumably, many of the Development Loans and Associated Loans in the NAMA business plan relate to loans for commercial property in Ireland. So, let’s examine some recent trends and indicators for the different commercial property sectors. Taking the Dublin office market as an example, research from the Centre for Urban and Regional Studies (CURS), TCD and SavillsHOK (MacLaran & O’Connell, 2007) has traced the changing volume and geography of office space in Dublin since 1995. Over the past 15 years, the volume of modern office stock expanded enormously. However, the geography of office development has also changed significantly, where proportionately, there has been a fall in the dominance of the prime office locations of Dublin 2 and 4, while suburban office locations have grown substantially. While in 1995, suburban office developments accounted for 14.6% of the total stock, by 2008, that figure had leapt to over 35%.

Rates of vacancy in the modern office stock vary considerably geographically and are particularly high in certain suburbs, having been especially high in west Dublin. The research indicates that since 2007, there have been high levels of activity in office construction in suburban areas, office space that has yet to reach the market. It is likely that some loans associated with office space in suburban areas will be transferred to NAMA, areas that even during the boom were experiencing relatively high vacancy levels.

Moreover, with the Minister for Justice Dermot Ahern recently banning the use of upward-only rent reviews for all new leases in commercial property from March 2010, this is likely to have a downward effect on the capital values that new office buildings are likely to achieve. While, this ban could be seen as a positive step for some business sectors (new tenants especially), it may have serious implications for NAMA (and simultaneously for Irish society) as it is tied to a rising property market. More specifically, many of NAMA’s underpinning calculations drew heavily on trends and expectations in commercial property sectors, which at that time were based on a system of upward-only rent reviews!

Residential Loans
It is likely that a good deal of the Development and Associated Loans relate to residential developments at various stages of construction (see discussion of ghost estates elsewhere on the blog). And, while it is clear that substantial reductions have occured in house prices generally, it is difficult to gauge the likely level of devaluation on residential loans that will transfer to NAMA. Where loans transferred to NAMA are found to involve housing developments that are at a stage of completion, we can draw on new house prices as an indicator.

Source: DoEHLG, Housing Statistics Bulletins, various years (Average house prices are derived from data supplied by the mortgage lending agencies on loans approved).

Based on the DoEHLG’s Housing Statistics Bulletins to July 2009, new house prices nationally fell by 26% since the peak of the boom (2007Q2). For Cork and Galway, the figure was 23%, for Limerick, 11%, with Waterford and other areas experiencing 26% and 25% price drops respectively. Notably, the fall was sharpest in Dublin where new house prices fell by 40% and there is little to indicate that the downward trend halted in September 2009. Unsurprisingly, sales activity is much reduced.
Notably, the type of ‘assets’ that will be transferred to NAMA will likely include some of those unfinished housing estates and apartment complexes that have become a very visible feature of the Irish landscape – in city suburbs, in inner-city neighbourhoods and at the edge of towns and villages countrywide. In these cases, the ratio of market value to loan value will have fallen dramatically, with the management and disposal of these ‘assets’ likely to prove difficult and expensive.

The property crash beyond NAMA
While this post has sought to develop further a geography of NAMA’s portfolio, raising some serious questions about the calculations and underpinning assumptions of NAMA in the process, it must also be remembered that there are other major elements of the property crash that will not be addressed by NAMA. The NAMA portfolio involves loans relating to ca.1,600 borrowers, with just 100 borrowers accounting for 50% of the portfolio. Land, Development and Associated Loans of less than €5M are excluded from NAMA (except those with EBS and Irish Nationwide); the number of these loans is unknown but their geography is likely to be predominantly rural in nature or rather, at the fringe of towns and villages throughout Ireland. Then, of course, there is that far more immediate concern for tens-of-thousands of households of mortgage repayment difficulties, negative equity and the threat of housing foreclosures in the not-too-distant future. In NAMA and the SPV, these households will find little comfort – but that’s another day’s blog.

Sinéad Kelly

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The Changing Geography of Dublin’s Modern Office Stock 1995-2008

Source: CURS/SavillsHOK Office Database