GLOBAL REPORT—More than two years have passed since the Republic of Ireland formed the National Asset Management Agency to quell the country’s growing banking crisis, but access to the approximately 140 hotel assets under enforcement still remains a slog for both those working closely with the agency and investors interested from afar.
The reasons are as ambiguous as they are numerous, said sources interviewed for this report.
Most pressing is the lack of clarity surrounding precisely what assets NAMA has under enforcement.
“There’s no clarity around it from my perspective what they have, what they have control of, and what’s actually available to sell,” said Marc Socker, director of hotel fund management for investment manager Invesco.
NAMA declined to offer a breakdown of assets by chain scale or brand. However, Patrick Ryan, a portfolio manager for the agency, did say the “vast majority” are unbranded.
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Anne Walsh
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Anne Walsh, director of Dublin-based Horwath Bastow Charleton, which has worked closely with NAMA since it was established in December 2009, said the agency has approximately 140 hotels under enforcement, including more than 80 in Ireland and 50 abroad, the majority of which are located elsewhere in the United Kingdom. Other countries with NAMA-enforced hotels include: Germany, France, the Czech Republic, Spain, Malta and Belgium.
Ryan was quick to point out the agency does not own these hotels or any asset type under enforcement.
“Our security is in the loans that have transferred from the participating institutions to NAMA,” he wrote in an email. “A commonly held belief is that NAMA have control over a multitude of assets, but this is not the case. We are a state-owned asset management agency tasked with recovering the maximum amount paid to participating institutions for qualifying loans.”
That processing of transferring those loans, along with other bureaucratic hurdles, further complicates matters—as was especially the case in the early goings, Walsh said.
After NAMA was formed, it was tasked with processing billions of euros worth of debt across all asset types from Irish financial institutions while under the scrutiny of nominated third parties who first had to approve the agency’s charted course of action, she said. NAMA, as an organization, has evolved over time with a focus on the small fraction of hotel loans under enforcement, she added.
Walsh, who has worked with NAMA since its beginning, said even she does not completely understand the agency with crystal clarity. “But gradually we're getting to understand what their strategy is for hotel assets.”
Investor interest
NAMA’s underlying objective is a simple one: “Our strategy is to recover the absolute maximum of all the loans we have on our books and for which we have paid on behalf of the Irish taxpayer,” Ryan said.
But the way in which the agency has executed that strategy is less straightforward.
Interested investors parties such as Invesco, which has 22 assets in its hotel portfolio, often don’t know how to approach NAMA with bids.
“NAMA is potentially a source of assets for us, clearly,” Socker said, but added it’s a “tricky vehicle to get a feel for.”
He’s encountered several people in Europe who claim they have an “in” with NAMA—those who provide a doorway to the agency’s undisclosed list of hotels. But every case has proven to be a dead end, Socker said.
“I’m very reluctant in a market like this to spend time on things where I don’t know who that last point of sale is,” he said.
Ryan said NAMA has received a steady level of investor interest since its inception.
“We do have a website which lists all assets that have been subject to enforcement,” he wrote via email. “All potential investors are guided to this website, which contains the name of the appointed Insolvency Practitioner and the relevant agent, if one has indeed been so retained.”
Some bidders have successfully jumped through the bureaucratic hurdles. The owners of London’s Daily Telegraph in September acquired the Claridges, the Connaught and the Berkeley hotels for more than €800 million (approximately US$1 billion), according to RTÉ.
And more recently, the Edwardian Group paid NAMA approximately €120 million (approximately US$157 million) for the Leicester Square Odeon, one of London’s most famous cinemas, which the group has planning permission to be redeveloped into a modern two-screen cinema, 245-bedroom hotel, restaurants and apartments, according to the Independent.
Executives from the Telegraph Media Group and the Edwardian Group could not be reached by press time.
Under its governing provisions, NAMA must recover 25% of its loans by the end of 2013.
“In reaching that target we will give weight to the overall property market and naturally focus on both asset classes and geographical areas where demand is greatest,” Ryan said. “We do not have specific timelines in relation to hotels or indeed any asset class.”
That means there’s no hurry to resolve the agency’s hotel portfolio, Walsh said—which could be a good thing for the market.
“What they don’t want to do is flood the market with a lot of assets,” she said. “They’re just feeding it.”
The underlying problem
NAMA’s restrained approach in resolving its hotel loans represents a stark departure from Ireland’s overly ambitious building boom in the mid-2000s, Walsh said.
Spurred by record high demand and government tax allowances, the country’s existing hotel supply ballooned from approximately 40,000 rooms to 60,000 during the past decade. Nearly 15,000 rooms entered the market since 2007 alone, Walsh said.
“Our market was sort of flooded with bedrooms right at the time when we started to see demand drop,” she said.
As international and domestic tourism dropped, so did hotel performance and profitability. There are more than 65 hotels in receivership in Ireland, including those not under NAMA’s enforcement, Walsh said.
Some properties are investigating alternative uses such as “step-down” facilities that help hospital patients transition out of supervised care, language schools and student accommodation. Even more are becoming seasonal, opening only during periods of high demand.
Anecdotally, several existing owners blame NAMA for keeping open zombie operations that create a drag on the rest of the hotel market. But Walsh said such scapegoating is unwarranted.
NAMA pushes its hotel assets to maximize asset value and perform as efficiently as possible, she said. And in some cases they outperform the market. Some of the loans NAMA inherited are from recent constructions located in prime locations and backed by strong international brands, Walsh said.
However, the agency also inherited properties in nontraditional tourist areas with no corporate base, she added.
Ireland’s hotel industry posted a 4.9% increase in occupancy to 66.1% during 2011, according to data from STR Global, sister company of HotelNewsNow.com. The country’s average daily rate increased 5.2% in local currency (12.3% in U.S. dollars), and its revenue per available room was up 10.3% in local currency (17.8% in U.S. dollars).
The road forward
After a two-year period of little to no movement, all signs point to increased activity for distressed assets under NAMA’s enforcement.
“We’ve started seeing a lot more activity,” Walsh said, highlighting a few recent hotel sales, such as the Claridges, the Connaught and the Berkeley cited above.
Investor interest certainly has not waned—especially for top-tier assets in key locations, she added.
“In general, I don’t mind where the assets come from,” Invesco’s Socker said. “If it’s good-quality real estate with good-quality management or tenants … then, yes, absolutely. And NAMA should be a big source of that,” he said of the group’s future acquisition strategy.
Even NAMA’s Ryan suggested an uptick in resolutions.
“There is a commonly held belief that during difficult economic times asset realizations will be pitched at an attractive level to generate interest. The hotel industry has been hard hit in recent years and a certain oversupply exists in parts of Ireland,” he said. “Accordingly, while that imbalance in supply and demand exists the investment community regards it as a buying opportunity, and we have certainly seen evidence that would support that view.”
