Exclusive: At least 1 in 6 Irish hotel rooms is under bank control, and 56% of these are controlled by NAMA, and NAMA banks

If you haven’t stayed in an Irish hotel recently, chances are you won’t appreciate the terrific value for money that is now available, especially via deals offered on the internet. For the foreign audience in particular on here, there are eyebrow-raising hotel prices available in what is still a modern European country with bucket-loads of craic, culture and commerce. In fact some deals are so good that you would wonder how the hotels can offer them at a profit. Remember this is a country with a relatively high minimum wage (€8.65 per hour compared with about €7.54 per hour in the UK), industry labour agreements which mandate special payments for overtime/weekend work, reputedly high business rates, and high costs for oil and gas. And yet you can find trendy three-star hotels for €60 a night per room inDublin city centre, including a great breakfast. And you can find five-star two-night deals with breakfast and one dinner for €130 per person sharing. And Irish five-star hotels earn their five stars! So why is there almost unbelievable value available in Irish hotels?

Certain industry sources seem to know the answer and believe hotels are being operated on a loss-making basis to avoid sales of the underlying property which would crystallise losses for banks which lent vast sums to the sector during the mid-2000s credit- and tax break-based boom. So for example, if you are Bank A and lent €100m to Developer A to develop Hotel A and Hotel A is now worth only €40m with Developer A likely to be in default – technical default because of the collapse in property prices which means the loan has broken its loan-to-value covenant, or actual default because revenues don’t cover operating costs let alone loan repayments  – then you can (a) call in the loan and dispose of the hotel and crystallise a €60m loss or (b) you can financially support the hotel as a going concern, even on a loss-making basis, in the belief that in a year of two, the hotel might be worth €50m. You could also theoretically mothball the hotel pending a hoped-for upturn in the property market, but that would mean an established hotel would lose goodwill – brand-related and specific customer-related goodwill – so that it would lose even more of its current value.

According to the widely-cited Bacon report – authored by economist and economic consultant Peter Bacon – there were 915 hotels accounting for 59,965 rooms in the State in 2009. Through an exhausting and exhaustive analysis of receiverships and foreclosure action as well as annual reports, it can be exclusively revealed here today that at least 81 hotels are today under bank control (and that includes NAMA) and these 81 hotels account for 9,714 rooms. To put it another way, more than one in six hotel rooms in Ireland today is under bank control; “bank control” means more than just a hotel having a working-capital overdraft facility with a bank, which practically all hotels have, or having a loan which is being repaid in accordance with the loan terms; it means the hotel is in the hands of a receiver or is reputedly owned by a company which is subject to enforcement action by a bank, or is reportedly dependent on bank support to operate, something which is sometimes revealed in annual accounts. Because the analysis presented here depends on positive reporting, the analysis is likely to under-estimate the number of hotels subjected to bank control – hotels may be under-water with their loans, but if banks have not taken action or if the hotels have not revealed their dependence on the banks in accounts, then they will have been excluded from the analysis. NAMA has said that there are 90 Irish hotels subject to NAMA loans, but its foreclosure list has less than 25 in Ireland You should read the *notes below in conjuction with the data which is shown in extract form below and is available in a spreadsheet here.

 

 

NAMA would like you to believe that its influence on the hotel sector is over-blown in the media, and that you should look elsewhere – particularly at non-NAMA bank, Bank of Scotland (Ireland) – for concerns about the bank-controlled sector. However the analysis would seem to indicate that NAMA has a far bigger influence with 49 hotels representing 5,396 rooms, foreclosed by NAMA or by NAMA banks – the NAMA banks being AIB, Anglo, Bank of Ireland, EBS and INBS. To put it another way, 55.5% of hotel rooms under bank control inIrelandtoday are under NAMA, or NAMA bank control. It should be emphasised that NAMA may not have acquired all hotel loans from the NAMA banks, for example, Sean Quinn’s Slieve Russell hotel in Cavan had receivers appointed by Anglo which is a NAMA bank, but like other Sean Quinn foreclosed property is not controlled by NAMA.

The traditional hotel sector is – naturally enough – keen to defend its business. The hotel business is not an easy business and the last thing independent operators need, is to have prices undercut by bank-controlled hotels who might be tempted to run loss-making operations in the hope that the value of the underlying property or the business will pick up, leading to a better overall financial result for the bank. Failte Ireland has already alluded to the sorts of issues being faced by “traditional” hotels which can’t afford refurbishment and investment on current margins (or losses) but bank-operated hotels seem to have no problem with “replacing curtains and carpets”. Tourism minister Leo Varadkar’s predecessor,Mary Harney, met with NAMA to discuss the concern but NAMA says it is not supporting loss-making businesses.

The traditional hotel sector hasn’t sat on its hands and kept its suspicions to itself and in 2010/11,Ireland’s Competition Authority apparently investigated the issue but concluded there wasn’t evidence of anti-competitive behaviour by bank-controlled hotels, and that bank-controlled hotels were seemingly profitable, or no less profitable than non bank-controlled hotels. There is no formal report on the matter by the Authority available from its website, seemingly. The Authority was on Wednesday asked to comment for this blogpost on its activities in this area, but has so far not responded beyond acknowledging the request for comment. If there is a substantive response, it will be posted as an update below.

Despite the work undertaken by the Authority in 2010/2011, it is claimed the Authority was not forthcoming on the range of costs it took into account when assessing the profitability of hotels, and suspicions seem to have lingered that some costs were excluded from the Authority’s analysis. Two such costs include local authority business rates and payments to banks for loans which may be for working capital or for building programmes like extensions or for capital purchases. And of course there is the cost of managing the hotel as opposed to running it, and inIrelandwe have a few specialist management companies that are engaged by the banks to manage foreclosed hotels eg Dalata and Tifco. A traditional owner/operator typically manages the hotel themselves, perhaps with family members or perhaps with professional managers, but regardless, this is a real cost for the hotel.

There is speculation in the industry that Ulster Bank is about to offload a portfolio of 12 hotels including two of Sean Dunne’s Ballsbridge hotels, Jury’s and the Berkeley Court. Separately, Savills presently has a portfolio of at least nine NAMA hotels but they appear not to be for sale yet, and mightn’t be for some time – the recent Comptroller and Auditor General special report on NAMA indicated it was NAMA strategy to “hold” Irish hotels, in other words to operate the businesses until some future date when hopefully the market will have recovered. However, it seems that lenders generally are presently undertaking calculations and weighing up the cost and lender-management time in supporting a hotel in the hope of an increase in value in the building or business, and they are comparing this cost with the estimated future value of the business or property in an economy still plagued with high unemployment – currently 14.8%, but even the forecasts point to 12%-plus in 2015 – anaemic economic growth with respect to GDP and contracting GNP and economic issues in key source countries for overseas visitors. Lenders may be concluding that it is better to crystallise losses today than throw, potentially, good money after bad. The removal of potentially artificial funding-supports to hotels through a sale may mean there is a contraction in the number of hotels/rooms available or that prices may need increase to cover costs.

And to visitors and potential visitors to Irish hotels, you might never find such incredible value again!

*Notes to the data produced on “bank-controlled” hotels.

(1) The information is generally based on press reporting or statements in annual accounts. The source for classifying any hotel as “bank-controlled” is shown in the comments field of the hotel title.

(2) The information is believed to be accurate today, but receivers may dispose of hotels at any time in the interests of creditors which would generally mean the hotel was no longer bank-controlled. For example, the Sand House Hotel in Donegal was subject to foreclosure action, but was sold at auction last month – apparently to a manager of the hotel – so it is no longer “bank-controlled”

(3) Hotels under bank control may be operating on a normal basis as far as suppliers, employees and customers are concerned.

(4) Association with a NAMA Participating Institution – AIB, Anglo, Bank of Ireland, EBS and INBS – does not necessarily mean the hotel is subject to a NAMA loan; for example, Sean Quinn’s Slieve Russell hotel is understood to be controlled by receivers acting at the behest of Anglo, and the underlying loan has not been transferred to NAMA.

(5) If any error is spotted in the list, please inform the blog using the confidential contact form here, or email to jagdipsingh2008[at]hotmail[dot]co[dot]uk. Any valid correction will be made expeditiously.

(6) The list may understate the presence of bank-controlled hotels because it is based on positive news reports and statements in annual reports. Not all receiverships and foreclosure action may be reported, and even if it is, it is not always apparent that it relates to, or is associated with, an hotel. Not all annual reports make reference to hotels owned by a company being dependent on bank support, even when that might be the case.

(7) It is not asserted that the prices available at the listed hotels are in breach of competition law. And prices at non bank-controlled hotels may be just as – if not more – competitive.

UPDATE: 6th July, 2012. The original spreadsheet of data has been amended to reflect corrections and additions/removals, the new data are shown above.