Archive for June 25th, 2010

With NAMA’s payment of €800m from an overall total of €7.7bn of first tranche loans relating to hotels, NAMA is set to become one of the biggest hotel operators in the State. And therein might lie a wider economic dilemma as set out yet again by Labour Deputy and Arts, Sport and Tourism Spokesperson Mary Upton who was in action in the Oireachtas again on Wednesday bravely defending the traditional hotel sector against the onslaught of what have been described as zombie hotels – hotels built during the Celtic Tiger era often on the back of lucrative tax breaks (the cost of the hotel could be written off over 7 years with a 15% capital allowance in years 1-6 and 10% in year 7) and which threaten long established operations though overcapacity and what is effective a price war. Media reports said there was a rush of 220 separate hotel planning applications in the period immediately preceding the abolition of the taxbreaks in 2005 and that there are now 60,000 rooms in the State, which represents an overcapacity of 12-15,000.

Like practically everything else in the State, it is difficult to lay hands on hard facts with respect to ownership of hotels. For sure some are NAMA bound. Others like the Killeshin Hotel in Portlaoise,  Osbourne-family-favourite Kinnity Castle in Offaly or indeed the Plaza Hotel in Tallaght are being dealt with, or are subject to action by, receivers – Grant Thornton in the case of the Killeshin on behalf of Anglo and  Farrell Grant Sparks (FGS Partnership) in the case of the other two. All continue to trade, with double rooms available for as little as €45 per night at the 4-star Killeshin, €55 per night at the 4-start Plaza or €198 (including dinner and breakfast) a night at the 4-star Kinnitty Castle.

Now according to the Leinster Express, the Killeshin will not be going into NAMA even though it is owned by a company in which the Leinster Express says Bernard McNamara “is the principal shareholder” because, according to the article, “Mr McNamara was a “dormant investor” with the result that the hotel had not been transferred to the National Asset Management Agency (NAMA)”. According to the Examiner, the owners of the Plaza are putative NAMA-bound developers, Tom McFeely and Larry O’Mahony and it is unclear why their reported €59m owing to Irish Nationwide Building Society (INBS) is not NAMA bound but nonetheless, plainly receivership by INBS is being sought now. And of course KBC is not a NAMA financial institution so Kinnitty Castle was never going to get near NAMA.

There are certainly well-established hotels that are commonly associated with putative NAMA-bound developers (take a look at the developers here to see the hotel and other assets that have been associated with them) and indeed hotels made up 10% approximately of the assets backing the first tranche of NAMA loans (€800m out of a consideration of €7.7bn) but most of these hotels have been established for decades. And of course many smaller hotels may not have loans of more than €5m attached to them by NAMA financial institutions (BoI, Anglo an d AIB – there is no lower limit on INBS and EBS).

So although NAMA may hold a substantial amount of hotel assets, it may be that many of the hotels are long established recognized brands and it is possible that most of the whipper-snapper new competition which was built during the Celtic Tiger era will be held by NAMA banks (but below the NAMA thresholds and therefore not going to NAMA) or non-NAMA banks.

UPDATE: The Sunday Business Post reports that ACC Bank has had receivers appointed to the Heritage Spa Hotel in Laois previously owned by developer Tom Keane and his company Seinfield Holdings (and it subsidiaries including the operator of the hotel, Lightridge). Anglo has appointed to the golf course and certain other property on the 260-acre site. The receivers are KPMG/Kieran Wallace and Anglo have had John McStay of McStay Luby accountants appointed as receiver to the golf course. Both operations remain open for business.

UPDATE:28th June, 2010. The Tourism, Culture and Sport Minister Mary Hanafin seemed badly briefed when responding to the latest question setting out concerns that NAMA will distort the hotel sector. She (Mary Hanafin) stated that NAMA had already taken over €300m of hotel related loans. In fact the NAMA press release in March 2010 was that it had bought hotel loans in the first tranche for €0.8m and if the haircut for hotels was representative of the 50% overall haircut then the original value of the loans would have been €1.6bn and if that represented a 77% LTV then the value of the hotels at loan origination might have been €2.1bn.

Update: 30th June, 2010. The 4-star Morrison Hotel on Ormond Quay in Dublin (rooms for €99 per night) was back in court where the receiver Martin Ferris, on behalf of Anglo Irish Bank, was pursuing what the Examiner reported to be €5.3m of unpaid rent. This is apparently in addition to the €41.5m mortgage that Anglo apparently have over the hotel through the group company, Thomas Read Holdings which is in liquidation.

UPDATE: 23rd August, 2010. An interesting statistic to emerge from the Irish Hotel Federation today – Paul Gallagher says that 30 hotels are in the hands of receivers today though that is expected to rise to 100 by the end of the year, at least using by IHF’s reckoning.

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The IMF yesterday issued their conclusions following their periodic “mission” to the State. Remembering that one of their former number, Steven Seelig, has recently taken up his post on the board of NAMA, perhaps their advice will more directly feed into NAMA operations than you might expect. Here’s what the IMF say:

“Financial sector weakness, fall in real estate prices, and high unemployment could continue to reinforce each other. For this reason, current policy efforts to boost banks’ capital-ratios are important and will help counter these tendencies.” With unemployment set to stay at 10%+ for most of the next five years, according to the IMF and most short-term forecasts saying real estate has another 10-40% to fall and a seizing up of the mortgage market, it is reassuring to hear that boosting the banks’ capital-rations will help counter the cycle, though to what extent remains unclear.

“Three restructuring priorities deserve attention: [one of which is] NAMA should schedule an orderly disposal of the property assets acquired aimed to reduce the large overhang of property in state hands, restart market transactions and, thus, help normalize the property market. Oversight of NAMA operations, which is provided for in the legislation, is desirable.” The hoard-or-dispose debate is no doubt raging within NAMA. Savills recently told a prestigious London conference that NAMA was more likely to take a longer period to manage domestic assets and it would be foreign assets that came to the market sooner. Does the IMF mean clearing the overhang (ie disposing of the assets here) will restart the market? What about NAMA’s objective of maximising a return for the taxpayer, might that be at odds with a more short-term disposal of assets? Sadly the IMF did not go beyond the NAMA legislation in calling for oversight – NAMA is still outside the Freedom of Information Act, it hasn’t a Business Plan still (another 5 days lads!) or published Codes of Practice.

“Mindful of the moral hazard risks, narrowly-targeted support measures for vulnerable homeowners would limit the economic and social fallout of the crisis. With their bolstered capital, banks could absorb the initial costs, perhaps basing themselves on the welfare system to identify eligible beneficiaries. This process will be aided by an overdue shift to a more efficient and balanced personal insolvency regime.” Whilst the call for an “overdue” reform of the personal solvency regime is to welcomed, it is unclear the extent that the IMF is calling for an unnatural social support of what might be impossible mortgage cases, and whether such support would unhelpfully distort the market for a long period.

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