Friday 31 March 2017

Hola Dublino! Spanish hotel giant sizes up first foray into Ireland with planned €85m acquisition of Gresham

Luis Riu has his heart set on buying Dublin's Gresham Hotel, but his Riu Hotels group faces stiff competition from Ireland and the United States to acquire the iconic property, writes John Mulligan

The Gresham Hotel in Dublin
The Gresham Hotel in Dublin
‘We always search for cities that are attractive for business travellers, but also have the history, heritage, beauty and attractions that make it a fascinating tourism destination. And Dublin has all of these,’ says Luis Riu, whose global group is eyeing the Gresham

Luis Riu rarely does interviews. It must be a sign of just how intensely interested the Spanish hotel boss is in buying the Gresham Hotel in Dublin then, that he's willing to do one now.

Riu waxes lyrical about the Gresham on O'Connell Street, one of the capital's most iconic hotels, which opened its doors in 1817.

It's the first time that Riu Hotels, founded in Mallorca in 1953 by Luis Riu's grandparents, has confirmed that it's interested in acquiring the Gresham, which is likely to fetch about €85m. Tally up refurbishment and other costs, and the final bill could easily touch €100m.

Riu - who runs the Spanish hotel business with his elder sister Carmen - is reluctant to say just how much that total might be, saying that bids are still open so he can't comment.

"We think we are bringing a good proposal, that apart from the money, includes our genuine respect for the history and quality of the hotel, that we hope to honour," he says.

But Nama - which is selling the property - wants to extract the best possible price for the taxpayer. Emotions don't come into it. And with Riu Hotels up against US private equity giants Apollo and Cerberus in the race to clinch the hotel, the battle is certain to be hard fought.

‘We always search for cities that are attractive for business travellers, but also have the history, heritage, beauty and attractions that make it a fascinating tourism destination. And Dublin has all of these,’ says Luis Riu, whose global group is eyeing the Gresham
‘We always search for cities that are attractive for business travellers, but also have the history, heritage, beauty and attractions that make it a fascinating tourism destination. And Dublin has all of these,’ says Luis Riu, whose global group is eyeing the Gresham

It has the makings of one of the showdowns that were loved by Riu's father. As a 17-year-old living in Venezuela in 1950, Luis Sr was enthralled by John Wayne westerns. So much so, that in 1980 he named the family's newest hotel in Mallorca the Rio Bravo.

Riu Hotels isn't without the swagger, means or firepower to seal a deal for the Gresham. The Spanish group is 49pc-owned by travel giant TUI, and is TUI's biggest hotel brand, operating more than 100 resorts and hotels around the world.

Last year, according to Riu, his hotel group generated revenue of €1.8bn and he says the figure will rise 15pc this year to over €2bn. It has over 27,000 employees, and last year spent €350m on the construction of new hotels, as well as refurbishment projects. This year, Riu says the group expects to invest about €500m.

Last weekend, Riu Hotels opened a new property in the Dominican Republic. Another recent addition is a huge Riu Plaza hotel in New York. Riu Hotels also intends to use the Plaza brand on the Gresham, if it manages to buy it. "The last two years have been very good for the business," says Riu, who believes Dublin will be the "perfect fit" for the Plaza brand.

"This really is an opportunity we are excited about," he says. "We had been studying different opportunities for some time but hadn't decided on one in particular until we learned about the sale of the Gresham hotel. We always search for cities that are attractive for business travellers, but also have the history, heritage, beauty and attractions that make it a fascinating tourism destination. And Dublin has all of these."

The Gresham is owned by Precinct Investments, which is controlled by builder Bryan Cullen. Precinct is the vehicle that was used in 2004 to take the then stock market-listed Gresham Hotel group private, in a €117m deal.

But doesn't the price tag on the Gresham put Riu off? Surely it's difficult to generate a return on such an expensive property? Even when the Gresham was originally heading for a sale last year with an expected price then of over €60m, the boss of Ireland's largest hotel group, Dalata, was cautious.

Pat McCann, the chief executive of Dalata, said at the time that while the Gresham was a property the group was interested in then, it wouldn't overpay for it.

"We are not going to buy properties just for the sake of buying properties," warned Mr McCann last September. "We'll buy properties because we feel can get a return. If the Gresham comes up for sale, we'll look at it. If it doesn't meet our investment criteria, we won't do it."

With Dalata not in the running for the hotel now, the group no doubt believed its capital would be better spent elsewhere. Indeed, Dalata has been busy buying other hotels and planning new developments.

Meanwhile, private equity giants that snapped up trophy Dublin hotels during the slump are now busy selling them for huge profits. US firm Blackstone has just put what was known as the Burlington Hotel in Dublin up for sale. It paid €67m for the 500-bedroom property in 2012, which now trades under the Doubletree by Hilton brand. It's expected to fetch €180m.

But Riu - whose family and that of his sister are among Spain's wealthiest - insists the expected price of the Gresham isn't an issue. "Of course, every transaction has a turning point in which the expected turnover does not justify the investment, and this has happened to us in with other opportunities," says Riu.

"There needs to be a balance between the owner's expectations and the profitability that the buyer thinks he can get. But, if we didn't believe in this project, we would have left the bid already. So we think that we can definitely find this balance."

Other properties in Dublin about to come to market include the Spencer Hotel in the IFSC, and the Morgan Hotel in Temple Bar.

"We know that prices have been rising and that tendency is for them to keep climbing in the future, but still, we think that this is a good opportunity," says Riu of the Gresham. "We invest a lot of money in the projects we believe in. This is a long-term business that requires a strong commitment with the destination and the employees. Our business is to deliver satisfied customers, not to resell properties."

And he's certain he can make money on the Gresham, despite the overall investment required. "We have always known that there are destinations in which the investment is paid off faster than others. But we did our homework before presenting our offer for this property," he says.

Riu also says that the group is "happy to count on the guidance of Windward Hotels" in making its first foray to Dublin.

Windward, whose chief executive is Patrick Coyle, currently manages the Gresham. Mr Coyle is a former chief executive of Gresham Hotels. Windward was expected to make a bid for the Gresham, having teamed up with Boston-based Pyramid Hotel Group.

But the race is now down to Apollo, Cerberus, Riu, and Dublin-based Tifco Hotels. Tifco's portfolio comprises 13 hotels, including Clontarf Castle, as well as a number of Crowne Plaza properties. The group is majority-owned by DID Electrical founder Gerry Houlihan, along with fellow directors Enda O'Meara and Aidan Crowe.

Despite noting that Riu is being guided by Windward, Luis Riu says that if it succeeds in buying the Gresham, the Spanish group will also be managing the property.

"We believe in a very thoughtful and controlled growth with five or six openings per year in strategic destinations," he explains. "And we also believe that the best way to control quality and service is to own and manage our hotels directly. And this would be the case with this prospective new hotel in Dublin. Against the growth model followed by most of our competitors, over 80pc of our portfolio is owned by RIU, and most of these hotels have also been directly constructed by us."

Riu has previously said there was never any doubt in his own mind that he would eventually work in the family business.

"During the summer months, we had a lot of friends to play with from France, Germany and other European countries," he said in a previous interview. "The winter season was a little more boring for us due to the higher average age of the hotel guests."

So how does he think the Gresham - if it becomes a Riu Plaza - will stack up against the local and other international competition?

"We have a very loyal clientele," he says, pointing out that 46pc of the more than four million guests that Riu Hotels hosted last year were repeating guests. "Some of these clients follow Riu to every new destination, so if we present a good combination of location, price and Riu service, this will encourage many of them to come to Dublin with us."

Whoever buys it, the grand dame of O'Connell Street is set for a whole new era.

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