No happy ever afters for luxury hotels run by banks
FIFTY hotels in Ireland are now in receivership and being run by banks that are owed hundreds of millions by the hoteliers, builders and investors who built them.
They include 20 of the country's newest and most luxurious hotels that are continuing to trade under new management put in by banks like Bank of Scotland Ireland, Ulster Bank, ACCBank, AIB, KBC Bank and Anglo Irish Bank to try to recover massive debts.
Since 2008, hotels like the four-star Tulfarris House Hotel in Blessington, Co Wicklow; Lisloughrey Lodge in Cong, Co Mayo; the Blarney Golf Resort in Co Cork; and more recently the Citywest Hotel have been taken over mostly by the foreign banks that lent billions to build hotels all over the country during the boom.
Well-known property developer Jim Mansfield was forced to hand over the running of his Citywest Hotel and Finnstown House Hotel in Co Kildare to receivers appointed by Bank of Scotland Ireland last year when it moved to collect €180m worth of loans he borrowed.
Another financially distressed developer, Paddy Kelly, lost control of the four-star plush hotel and golf resort Tulfarris House, where he has a major stake, after Anglo Irish Bank appointed a receiver in 2009 to collect loans of €25m.
Meanwhile, Ulster Bank took another of his hotel investments a year later. In 2010, the bank put KPMG accountant Kieran Wallace in charge of the boutique hotel Lisloughrey Lodge in Cong that was developed by Mr Kelly and financier Niall McFadden, to recover a €10m loan they took from that bank.
In Laois, Anglo Irish Bank has been running the four-star Heritage House Hotel and its five-star sister hotel the Killinard Heritage Hotel since last year, when it got a judgment in the commercial court against its founder, local hotelier and builder Tom Keane, who owes the bank €89.9m.
Ulster Bank is also running White's Hotel in Wexford since July 2009, having taken control of the hotel that high-profile investors like Glen Dimplex chairman Martin Naughton and Davy Stockbrokers executive David Shubotham and others put €9.6m into as part of a tax-incentive scheme. Ulster Bank is owed €32.5m by Balmaford, the company that redeveloped the hotel in 2004, and is running White's until it can be sold.
AIB also backed some of the hotels in receivership, including the Blarney Golf Resort in Co Cork, a 168-acre complex with 38 golf lodges, a four-star hotel with 64 bedrooms and a conference centre. It was developed at a cost of €30m and was put into receivership in 2009 by AIB, which is owed loans of €20m. Its owners have unsuccessfully tried to sell it, first offering it for sale for €20m, with the price then reduced further to between €10m and €15m, but there were no takers.
The Killeshin Hotel in Portlaoise, a four-star property, went into receivership in 2010 when Anglo Irish Bank moved to secure loans of around €18m that were taken out by its backers, which included property developer Bernard McNamara. He is involved in a number of other hotels, including the Shelbourne, that are now separately controlled by the National Assets Management Agency.
Mr Wallace expects to be running these luxury hotels for the banks for some time yet.
"The banks will continue to run them until they see an opportunity to sell," he says. "For now, they want to stabilise the business, cut costs and then look to sell them."
Bank of Scotland Ireland lent the most money to these hotels during the boom and faces the biggest losses, with Ulster Bank also struggling to cope with its bad hotel loans.
Martin Ferris of Ferris & Associates, the receiver running the Citywest Hotel, its sister hotel Finnstown House and the Morrison Hotel in Dublin, says there is international interest in buying some of these hotels, but until Ireland's financial position and its banks are steadier, it is unlikely any will be bought in the near term.
The receivers have, in most cases, brought in professional hotel operators to take over the day-to-day running of the hotel, and often they retain existing hotel staff. Ronan King, a former partner at BDO Simpson Xavier, founded the Hotel Asset Management Services group (HAMS), which is running hotels such as Tulfarris House, the Clanree Hotel in Donegal and the Osprey in Naas, Co Kildare. He says an oversupply of hotels has also happened in the US and in the UK, but the situation is worse in Ireland.
"We have 20,000 too many rooms that have to come out of the sector," he says. "Those hotels will either have to be forced out of business or they will run out of money. It could take 10 years to work out."