EP Business in Hospitality Issue 48 - January 2014

BUSINESS
company was liquidated. So much for
cast iron management agreements.
Hotel-related debt stands at circa €2.9bn,
which is clearly unsustainable.
Fundamentally, many hotels in Ireland
have solid trading businesses and it was
the only debt associated with the loans
(not the ability to trade) that forced a
change in ownership. This has created
opportunities for indigenous management
companies (Dalata & Tifco) to asset
manage circa 50 properties for banks,
while the hotels are prepared for sale.
Indeed, there has been a flood of sales
in 2013, and Savills expects total hotel
salesto exceed €300m in 2013 with more
than 30 properties forecasted to sell.
Investors in these distressed properties
are mostly international and are mainly
cash buyers or institutional buyers, such
as Blackstone and Patron Capital.
Private-equity buyers are also in the mix,
including Chinese and American
individuals. Examples include Red
Carnation’s purchase of Ashford Castle
and Palladian’s purchase of Sheen Falls
Lodge in Kerry.
Private buyers sometimes require
asset management companies to
represent them and recently it was
announced that Michels and Taylor
(M&T)were advising Swiss Fund BSQ,
which bought Citywest, Ireland’s largest
hotel, with 774 bedrooms for around
€38k per key. M&T expect to take on the
running of this hotel and the timing is
fortuitous, given M&T’s recent
Temple Bar, Dublin, Ireland
appointment to market and manage 25
hotels owned by RBS (Ulster Bank).
This represents a significant shift in
the ROI hotel sector, but also presents
opportunities for other asset
management companies. Of course,
BDL/Redefine are already in Ireland
managing 17 properties on behalf of
the now departed Bank of Scotland
(Ireland) and Lloyds.
This points to an overlap of expertise
between the UK and Ireland and the
arrival of non-domestic management
companies will bring significant
economies of scale to these operations,
not to mention access to large UK
marketing databases and a much wider
target audience. How successful these
these joint ventures will be will be
remains to be seen, however it does
represent a significant change in
direction for bank-controlled distressed
hotels (of which there are about 200).
Some hoteliers are in for a rude
awakening when the above players
arrive to check in and play hard ball.
“A third of all Irish
imports come
from Britain, or
€19 billion worth
of goods”
Pubs
The licensed sector is also going
through a period of change and pubrelated
debt is around €2.2bn. There are
approximately 4,000 pubs in the ROI,
nearly all privately owned, but nearly one
per week is closing (26 per week in the
UK). With a population of only 4.58
million in ROI (6.9 million all island) there
are too many pubs and the off-trade
(supermarkets) are selling often below
cost, thus further eroding sales. Diageo
and Heineken operate a duopoly on
draught beer distribution, which many of
the UK brewers would love to break up, as
there are rich pickings (profitable pubs) to
be snapped up in larger cities.
Recent moves by JD Wetherspoons
and Greene King have alarmed the
domestic trade as scouts have been
looking for suitable pubs to buy. JDW
has nine pubs in NI, but the ROI market
is looking frothy again now that property
values have collapsed and are more
realistic – they are planning to open over
30 pubs south of the border. Again the
trading businesses are good in urban
areas, but level of debt associated with
the property is unsustainable. Imagine
the aforementioned companies licking
their lips at the chance to not only get a
foothold in Ireland, but also
to supply new products in an untapped
(excuse the pun) market, where
beverage cost of sales are north of 30
percent partly because of the duopoly’s
stranglehold on the market.
Heavily indebted Irish pubs are
vulnerable and banks would be more
than happy to take a haircut on their
loans if the quantum of euros or sterling
is right. Expect to see more foreclosures
on profitable pubs as JDW and GK seek
out pubs on high streets with floorplates
in excess of 4,000 sq ft (of which there
are plenty) and parking spaces.
Interestingly, when news of the UK
companies’ interest broke, a Facebook
campaign named “feckoffwetherspoons”
(yes, seriously!) went viral with 2,395
likes at the time of writing! While
some are clearly exercised by this
development the dye has been cast
and capitalism, not nationalism, will be
the ultimate arbiter. But caveat emptor
when picking out sites as certain local
sensitivities have to be understood by
any new owner, particularly where
alcohol is served.
Opportunities
If you are interested in getting into
Ireland a word of warning: do your
research. Despite the legendary and
genuinely warm Irish welcome for all
visitors, cultural sensitivities must be
understood in light of over 800 years of
shared history between the two islands.
It’s fair to say that the vast majority of
the population have embraced the
much improved relations between the
UK and Ireland, but despite the recession
and six successive slash and burn
budgets, the Irish spirit is indomitable
and can be a force of nature for good or
ill – it just depends on what the proposition
is. If the promise of well run, clean and
good value hotels and pubs is delivered,
then it won’t matter who or what
company is delivering it. Price and
service are the new currency in hospitality
and Ireland is no different in embracing
this new reality. Just remember that the
Irish still expect pub table service and
that ice and lemon is mandatory in all
spirit drinks! •
EP | January 14 | 17