Anglo Irish Buying Opportunity Too Good to Be True?

Like many banks the world over, Ireland's Anglo Irish Bank was reckless in lending against commercial real estate through the last decade.  The Bank, who's presence was largely confined to Ireland, New York City, and L.A., ramped up its commercial real estate lending and extended loans to properties across dozens of U.S. cities.   Today, Anglo Irish has designated nearly 1.5 Billion Euros worth of loans secured by commercial real estate as “impaired,” with another 1 Billion Euros worth of loans designated “past due.”  Ireland's National Asset Management Agency (NAMA) is ready to take ownership of the Bank's loan portfolios and liquidate the assets.  This represents an excellent buying opportunity as NAMA has sold several notes at a 50% discount or better.  But this article published by Bloomberg on Sunday highlights why buyers may not get a chance to bid on Anglo Irish loans.

Many real estate investors, including The Blackstone Group BX and Colony Capital who are apparently exploring a purchase of Anglo Irish loans, are on the hunt to buy distressed debt from public agencies like NAMA.   The problem is, however, it's not clear that NAMA will be able to gain control of the loans made by Anglo Irish.  NAMA was set up in such a way that gave the agency the authority to take control of an owner or developer's entire book of loans from a distressed lender.  This means that even if your loan is performing, it may end up at NAMA and sold for a discount because your lender is in distress.  This could be disastrous for an owner, which is why Irish investor Patrick McKillen has filed a lawsuit to block NAMA from taking control of the loans he has with Anglo Irish.  If McKillen is successful, it will be more difficult for NAMA to conduct note liquidations going forward.

Opportunistic buyers of distressed debt are of course hoping that McKillen is unsuccessful in blocking NAMA.  Owners of commercial real estate who have loans with distressed Banks, on the other hand, are hoping McKillen's suit will put a stop to unnecessary liquidation of perfectly healthy assets.  Whatever ends up happening, one message is clear: buying real estate at agency liquidations is more difficult than it was after the S&L crisis.  Investors who are looking back to those days and hoping that they will be able to build mini-empires the way Fortress FIG, Colony, or Starwood did are delusional.  It was a difficult process then, and it's an exponentially more difficult process now.