2010 was a year to forget but the market should start to move when Nama begins to offload properties, writes JACK FAGAN

THIS past year is one most people in the commercial property industry will want to forget. Practically every developer of any significance is either in or en route to Nama. Capital values have fallen by at least 59 per cent over the last three years, bank credit is extremely tight and the Irish economy is facing into its most difficult period yet.

The loss of so much wealth in what was a “perfect storm” will have long-term repercussions for developers and investors. It may prove even more catastrophic for the banks which remain in transition and under pressure after two years trying to work out how to deal with the hangover of their frenzied lending binge.

With Nama due to move in the coming months to offload what have become known as “distressed”properties it is generally expected that they will initially concentrate on selling UK stock where there is still a strong market for income-producing buildings, particularly retail investments on Londons high streets.

In the meantime, receivers for Bank of Scotland, ACC Bank and other non-Nama banks are due to step up their drive here to recover what they can from the sale of commercial and residential buildings even if it means letting them go at knockdown prices. AIB and Bank of Ireland are also looking at ways of disposing of a range of properties where the borrowings are below the €20 million threshold set for entry to Nama.

Estate agents advising the banks on development land estimate that it has fallen in value by up to 75 or 80 per cent in most provincial towns and is virtually unsalable in the present climate.

Worst affected of all is land bought for housing on the understanding that the appropriate zoning would follow. That did not happen and in many cases the land has now lost more than 90 per cent of its value.

Although credit contraction is continuing to discourage vendors from putting even good Dublin investment properties on the market, there is increasing optimism that some degree of credit will become available again in the coming months following the IMF bailout.

It is now largely up to Nama to kick-start the investment market and with two-thirds of the expected €81 billion of Nama property assets located in Ireland, the State agency will naturally want to start moving part of it early in the new year.

It may well turn out that some of our trophy properties will end up being bought by UK investors and the natural reaction will be – so what.

A few short years ago the British watched and wondered as Derek Quinlan, David Arnold, Warren Private, Bank of Ireland Private Banking and many others repeatedly swooped on landmark London properties.

Nama officials will be well aware that there have been any number of overseas investment groups scouring the Dublin market in recent months in search of well-located properties with good covenants and long leases. Investment agents report that there is also any number of cash rich Irish investors looking for similar properties priced below €10 million.

Even with the harsh credit restrictions of the past year, the investment market has already exceeded €250 million – a good deal better than the €137 million recorded in 2009 but a long way from the €3.6 billion spent at the height of the property boom in 2006.

This years turnover could well be considerably higher if year-long discussions are completed on the sale of Liffey Valley shopping centre in west Dublin. It has a value of around €350 million.

Considering that the property industry was directly responsible for the current banking crisis it is hardly surprising that it has been one of the first to pay the price for squandering vast sums of money.

Property values have collapsed leaving many developers and investors with serious financial shortfalls. The problems have been compounded by the fall-off in property sales and the much reduced rents coming from commercial and residential properties

The result is a property industry that is adjusting to a new set of monetary values. Yesterdays prices are no longer valid.

The challenge now is to rebuild the business, this time on a more secure and sustainable foundation than the madness which took it over for most of the past decade.