Saturday 24 March 2018

From picking deals to picking the wallpaper... Tetrarch's hotels chief speaks out

Damien Gaffney is chief of Tetrarch Capital's hotel business. He spoke to Gavin McLoughlin about the joys and pitfalls of the hospitality sector

Damien Gaffney is chief of Tetrarch Capital’s hotel business
Damien Gaffney is chief of Tetrarch Capital’s hotel business
Gavin McLoughlin

Gavin McLoughlin

Damien Gaffney's career has taken a rather interesting turn.

Where once his days were spent identifying acquisition opportunities, now he spends at least some of his time identifying suitable wallpaper.

Gaffney (37) is the managing director of Tetrarch Hospitality runs some of Ireland's most glamorous, high-profile hotels.

One of them is Citywest, where Tetrarch has a major upgrade project under way.

We sit in a recently renovated meeting room, for which Gaffney himself chose the new wallpaper.

He says the transition from deal hunter to hotelier is easier than one might expect. For one thing, having originally been Tetrarch's chief investment officer, he knew the assets well.

"The mechanics of most businesses are the same. And I suppose the transition for me was a little bit easier in the sense that I had underwritten all of these assets from an investment point of view," Gaffney says.

"So for instance, here [in Citywest] I would have built the model, I would have run the projections, I would have said we can sell this amount of alcohol, this amount of food or whatever. So when you step in you have a real sense as to the capability of the business. The big challenge for me undoubtedly, which I probably didn't foresee, as being as much of a commitment as it has been has been the whole people side. That's been a big challenge. The whole HR side."

Gaffney leads a team of 1,700 people across the eight hotels and one hostel that Tetrarch has in its hospitality division now.

"That's been a much bigger challenge for me. For lots of reasons. All of the assets we bought come from some form of insolvency event. So as a result it's only natural that a lot of those assets, the culture has been somewhat abnormal because you're living in an abnormal circumstance. You're in receivership, there's no money to spend. People then get a mentality of: Oh we can't do this or we can't spend that, and it takes time to change that culture."

Gaffney has been involved with Tetrarch since the beginning. He started out on the well-trodden path of the B.Comm at UCD, followed by postgraduate study at the Smurfit School of Business, followed by training as an accountant at one of the 'Big Four' -in his case PwC.

A spell in Atlanta followed, where Gaffney was seconded to work for "some very entrepreneurial guys" - which fuelled an interest in corporate finance. He joined the Merrion Group, then had a two-year spell as a corporate finance manager at Fyffes.

"The McCanns are good guys, they're a nice family and very good and fair to work for. But it was an interesting exposure for me, not only in emerging markets but also in the whole oil industry. Oil is obviously one of the largest cost components of Fyffes' balance sheet," Gaffney says, before candidly revealing why he decided to move on,

"They had a significant amount of capital on the balance sheet, and I spent two years with them travelling the world with them identifying targets and so on and so forth, and I just felt that they were, how should I say, just a little bit reluctant to do deals that I probably would have been a little bit more bullish on.

"And I think that's probably a testament to Carl and David McCann, they're in business so long that they've managed to really manage the business without taking huge risks. The fact that they nearly got there with the Chiquita deal - some time ago now - that was probably on the radar without really anybody [below the McCanns in Fyffes] knowing. None of us knew at the time, but I would suspect that they wanted to do a really large deal to transform the business.

"I think a lot of the businesses that we looked at we didn't complete on because... I don't know if they were big enough or whatever, but I was keen to get more execution experience rather than just identifying assets and learning. It was good, but it was time to move on," Gaffney says.

He moved to private equity firm FL Partners, where he worked in the same building as Tetrarch boss Michael McElligott and the company's head of asset management James Byrne.

He leapt at the opportunity to join McElligott and Byrne when Tetrarch was established in 2011.

"To have some strategic influence over where I wanted to go with my career - not to be a founding partner as such, but to be involved in the direction of it? Well, that was just an opportunity I couldn't refuse."

His move to head up a separately established hospitality platform happened by osmosis, he explains.

"I was spending a lot of time on the hotels anyway, and Michael knew that. I had my own views in relation to how I felt we could actually add value through a platform... and we just discussed that. We meet regularly as the partners in the business, and it just evolved through last year, around September/October. And I said: 'Do you know what, I'd really like to do this.'

"It wasn't case of looking around the room thinking I'm definitely the best person to do this or whatever - but I was closer to the hospitality assets than any of the other guys. I had done the underwriting and I was really excited about it."

The priority now is to develop the assets Tetrarch has - which apart from Citywest include Mount Juliet, Mount Wolseley in Carlow, the plush Marker Hotel in the Dublin Docklands, and Powerscourt in Wicklow.

Significant sums are being invested in Citywest and Mount Juliet (where Gaffney hopes to attract the Irish Open back to) and in a number of development sites in Dublin city centre.

The company has submitted plans for a 158-bedroom 'budget boutique' hotel at Sackville Place in Dublin and a 159-unit aparthotel off Pearse Street in the capital, and is finalising a scheme for a site at Townsend Street which will include a hotel with 250-400 rooms. Tetrarch is aiming to get those rooms to market within the next 24 months, Gaffney says.

At Citywest, perhaps the most interesting of Tetrarch's plans is the expansion of the conference centre to accommodate up to 6,000 people. Currently it can take just over 4,000.

The idea is that they'll be able to use it host concerts suitable for acts at a scale midway between venues like the Three Arena on one hand, and Vicar St or the Olympia on the other.

"Citywest is a fantastic campus, and there's lots of optionality and flexibility around it, mainly because of the location, but also because we can accommodate people here that no other people really can do. We've the convention centre, we've the conference space, and we've the 774 bedrooms. For us it's really about how do we set out a business plan that best marries all of that."

Permission for the plan was granted by South Dublin County Council but an appeals process is underway. The owners of the Three Arena have appealed to An Bord Pleanala, saying that "the proposed use of the conference centre for public concerts is entirely inappropriate" in this out-of-city location.

"A concert venue at this location will detract from the vitality and vibrancy of the city centre," their appeal states.

Ann Mansfield, the widow of Jim Mansfield - who built Citywest - has also appealed to An Bord Pleanala, saying that "as the nearest neighbour to the Convention Centre who enjoys the peace and enjoyment of my home and its attendant grounds, the noise impact of the development concerns me greatly."

Gaffney hopes the process will be concluded by November.

"They've obviously appealed for different reasons, and we've reviewed the submissions that they've made. The Mansfields have different reasons to object than the guys in the Three Arena have. We are hoping that that will all be concluded by November of this year, so we need to respond to all of the bits and pieces that are in the appeals. That's going to take time. It's an ongoing process, I'm confident that we'll get there, but you just don't know.

"It'd be a welcome headache for us if we get the planning permission through on the convention centre. It would open up a whole world for us regarding music events - which previously we haven't had to consider.

"But then again it's all about mix too, so we don't want to necessarily give up the entire hotel for a weekend because a gig is on. There may well be a better return if we have a conference on in some part of the hotel as well.

"We've run various different scenarios in terms of what we think that would look like and what the diary would look like in the event - but that process is ongoing and you don't want to go too far down the road, because if it doesn't happen then it's a bit of a wasted exercise."

What happens when all that is said and done? Might the dealmaking itch that Gaffney had at Fyffes resurface at Tetrarch?

"We're always looking, there's always opportunities that come up - though they're less plentiful now than they were over the past number of years. And to be quite honest, we have an enormous amount on our plate in trying to bring the best out of the sites that we have - so we don't want to do too much either.

"It's about trying to find that balance between looking at new things and making sure you do a good job with the ones that you have," he says.

"On the hospitality side for Tetrarch, I think there's definitely a discussion that we've had around raising additional capital, but I think we really wanted get out of the ground on the development assets which we have. Like we'd like to get Sackville, Mark Street, Townsend Street much more advanced - and maybe then consider some form of capital event in 2018."

What form would that take?

"I don't really actually know, to be quite honest. The market's obviously very volatile at the moment - because of Brexit. I don't see too many IPOs happening because just everything seems to be on standstill. So at this moment in time it's impossible to know.

"Plus there's the mix of our assets. We've never really done an analysis to ask if the market wants a four-star hotel in Clonmel with a five-star hotel like Powerscourt in the same mix, or do you want an aparthotel with a long-term lease in the pot?

"We haven't actually done that exercise, so I think for us we're fairly open to it. But we're well capitalised at the moment, we don't have any urgent need for fresh capital and we're on course. We're probably ahead of schedule in relation to the assets that we have," Gaffney says.

He says hospitality is a nice industry to work in, but also a tough one. "It never stops. Things can happen at any hour of any day in any week, which gives it a little bit of a unique feature compared to some other industries.

"But it's nice to actually see the end point when you invest in things. You can see the benefit of it, you can see somebody has had a great customer experience.

"I get a buzz seeing great reviews for a new bar that we've brought's a bit sad but I enjoy hearing those kinds of things, that you're improving places and people's experiences are better as a result."

'I can't sleep unless I read every night'

In my time off...

“I’ve two kids, a four-year-old and a two-year-old, so I spend a bit of time with them because I tend to work about 70 hours a week. I do a bit of swimming with the kids. I don’t play as much golf as I’d like to — even though we’ve three golf courses under ownership. Everyone thinks I should be a great golfer, but I’ve played just five rounds this year.”

My music taste is...

“I’m a bit of an indie fan. Interpol and Radiohead is my sweet spot when it comes to music, The National... that kind of stuff.”

The last book I read was...

“I can’t sleep unless I read every night, so I get through a fair few books. I just re-read A Confederacy of Dunces by John Kennedy Toole, which is one of my favourite books. It’s a very, very funny satirical book. He died before it was actually published and then when it was published it won the Pulitzer Prize.”

The best piece of career advice I’ve received is...

“The one thing is not to be afraid to make mistakes. Everybody makes mistakes. I think sometimes in business, there’s a bit too much pressure on people to be perfect all the time.”

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