Newstead properties now worth less

The lowering of licence fees to non-Bermudians and PRC holders is a “positive start” and could help Butterfield’s bottom line, but CEO Brendan McDonagh said he isn’t going to get “carried away” with the changes.

Speaking to the Bermuda Sun, Mr McDonagh said Butterfield has been impacted by the sluggish real estate market in Bermuda.

On Tuesday Butterfield reported $54.9 million in core profits, but decided to write down several assets.

He characterized 2012 as a “good year” as Butterfield makes progress towards returning to the profit levels of yesteryear.

The CEO said: “Butterfield owns directly a number of fractionals in Newstead as part of the historical restructuring of that debt. We have just marked the value of those down to reflect what is today’s sale price of those fractions.

“We don’t have any loans against it, because they are our own fractions. They belong to the Bank of Butterfield and we actually use them.”

Newstead is currently in receivership and a new owner of the property has yet to be found.

He said when contractors, consultants or short-term employees come in, they stay in the Newstead units.

Brad Rowse, CFO of Butterfield, said: “We’ve written down the value of several properties. The Newstead properties we’ve written down by $8 million. They are now non-core assets, which we can now sell without losing money instead of leaving them on the books and inflating the value.”

Mr McDonagh added the Newstead fractionals along with several other properties have been on the Bank’s books for years and they are not worth as much as they were several years ago.

He said the problem with valuations in the Bermuda real estate market is that there are not a lot of recent transactions to get a true comparable price.

“If you go out and you get three valuations, I guarantee there will be a significant variance between the three.

“Historically, when there is a lot of turnover and therefore a lot of price points. That difference between the three valuations would be narrower. Nobody at the moment knows how to measure the market.”

Mr McDonagh said that could change with the various policy moves by Government to help stimulate the market. The changes in the licensing fees in the real estate market, impacts a portion of the bank’s business, but how much an impact those changes make are yet to be seen..

He said: “There are still restrictions overall on ownership and that’s understandable that on an island this small that it’s necessary to make sure that housing remains affordable.

“The recent policy changes will affect certain segments of the markets, there is no doubt about that. I’m not sure it will have a material effect.

“It will create mortgage opportunities because people will want to buy homes. It’s just part of a greater set of initiatives being taken or need to be taken… that will all contribute to a general feeling that Bermuda is getting much more proactive in attracting business and growing business on the island.

“There’s no doubt at a local level if 10, or 15 or 20 more houses are sold in the next six months then would have been sold in the last six months, at least half of them will have refurbishment plans.

“That sort of investment, while not significant in terms of the overall GDP, trickles down to small businesses — decorators, electricians and so on. You’ll see that activity pick up.

“Whether it flows through into a broader confidence, we’ll have to see. But it’s a start. I wouldn’t want to get carried away with it but I do believe it’s a positive start.” 

Editor’s note: In accordance with Media Council transparency rules, Don Burgess is a shareholder in the Bank of Butterfield.