• Patron deal as Dublin rebounds

Patron Capital has made its third acquisition in Ireland, buying Dublin’s Clarion Hotel out of receivership for EUR33m.

The deal illustrated the growing enthusiasm for Irish real estate in prime locations, as investors looked for bargains which would benefit from the country’s economic recovery.

The hotel had been marketed alongside the Clarion Hotel Dublin Airport, with both hotels described as “trading well and profitably”. They were both under the Clarion flag under a franchise agreement with Choice Hotels International but were offered free from the management agreement.

Patron said that the site would be managed by Fitzpatrick Lifestyle Hotels, an established owner and operator of hotels in the Dublin market, which also provided some of the equity for the deal. Patron and Fitzpatrick said that they intended to build on the hotel’s strong recent performance via “significant” capital investment in the property.

Robert Booth, Patron’s senior adviser in Dublin, said: “This transaction is an excellent example of the real estate-backed investments that Patron Capital is seeking in Ireland and elsewhere.”

The Dublin airport site was bought last year by the Dublin Airport Authority for more than EUR10m.

Patron also owns the former Chief O’Neills hotel, which it runs under its Generator brand, and invested in opening a site in Dublin’s Spawell under its five-a-side football brand Powerleague. The Clarion was Patron’s second acquisition of assets controlled by NAMA.

US-based Kennedy Wilson also announced that it had acquired debt against the Shelbourne Hotel in Dublin for USD152m. The group said that it had completed the purchase of notes with an unpaid principal balance of approximately USD310m, with USD70m of equity from the company and USD82m.

“We were able to buy the debt on the Shelbourne at a significant discount to the unpaid principal balance in a complex transaction involving multiple sellers,” said Mary Ricks, president and CEO of Kennedy Wilson Europe. “The notes are secured by an iconic asset located in the heart of Dublin with significant value enhancement potential.”

The Shelbourne Hotel was bought by a group of Irish investors in 2004 for a reported EUR140m, with a further EUR125m then spent on refurbishments. 

The sales came as PwC named Dublin as the likely real estate investment capital of Europe for 2014. The ‘Emerging Trends in Real Estate Europe 2014’ report, compiled alongside the Urban Land Institute, said that investors were expected to plough billions of Euros into the Dublin commercial property market on the expectation of economic recovery. The city moved up from 15th place in last year’s survey.

The study said: “Dublin’s real estate market has been transformed from a “no-go” location among investors only two years ago, to being one of the hottest markets in Europe, with both domestic and international investors attracted by pricing levels and Ireland’s improving economic outlook.” Unemployment is currently at its lowest level since 2009, and GDP is forecast to grow by 2% this year.

Improved economic conditions and trading have further motivated  those involved with the Irish hotel sector., with the National Asset Management Agency creating a management company, called the National Asset Leisure Holdings to get the most from the holdings on its books.

"This is one of a number of special purpose companies established by NAMA for administrative purposes to facilitate the management of assets in its portfolio," said a NAMA spokesman. It is hoped that the new unit will be able to strengthen trading and increase the chances of NAMA getting a good price on sale.

At the end of last month KMPG confirmed that all tranches of Project Rock and Project Salt – mostly commercial real estate loans, around EUR7.7bn is thought to be in arrears – will begin the second phase of the sale process on 19 January, with final and binding bids due in on 14 February.

Rock is made up of largely UK commercial real estate, much of it leisure-focused, including hotels, with loans also secured against properties in the US, Germany, Northern Ireland Sweden, Spain and Hungary. The recovery in the UK market, particularly in the regions where affected portfolios such as QHotels and Somerston are located, has been stronger than at equivalent properties in Ireland. Initial reports suggest that interest has been great for the loans, in particular from US funds.

Michael Noonan, the Irish finance minister, has put a restriction on the loans in Rock being sold at a discount of more than 2.32% of the value attributed to them by IBRC’s advisers. There are no such restrictions on Salt.

According to NAMA’s end-of-year review, the body generated EUR5.8bn in cash during the year,  including EUR3.8bn from the proceeds of asset disposals. Total cash generated in the 45 months since inception has reached EUR16.5bn, EUR10.6bn of which relates to asset disposals.

NAMA did not specify in the review the value of its loan portfolio. In its Q3 results, it confirmed that the book value of its loan portfolio was EUR20.7bn. down by EUR2.1bn from the end of 2012. At the end of Q3 there was over EUR2bn of commercial and residential property on the market through NAMA debtors and receivers.

NAMA remains the reserve buyer for the remaining IBRC loans and said that it was planning on the basis that it would acquire a significant proportion of the EUR22bn portfolio.


HA Perspective: [by Katherine Doggrell] Patrick Ryan, senior property adviser, hotel and leisure, at NAMA is confident that agency’s plans to sell loans linked to hotels around the capital will go ahead and has spoken of substantial interest from private equity entities, investment funds and high-net worth individuals.

The days where investors were not sure how to approach NAMA seem to have passed, as deals such as that involving Claridge’s, the Connaught and the Berkeley illustrated that deals could be done.

The concern now for NAMA will be to continue with its previous policy of not flooding the market with hotels – tempting now that demand is building – and achieving the maximum price for each loan. This drip-feeding has served it well so far and, as the economic situation improves and NAMA works on the hotels’ trading, it is looking good for the salvage teams.  Former investors must wish the market had been as cautious during the building boom.

While interest from investors has picked up in recent months, NAMA is aware that most buyers will be looking for portfolios over EUR100m than some of the small fry on offer and are packaging accordingly. For smaller buyers, NAMA is offering financing of up to 60% of the price, at rates about 4% above Libor.

NAMA has denied that it has been propping up “zombie hotels” – and has twice passed inspection by the Competition Authority after such accusations – denial which is backed up by the agency’s decision to take action against almost 30 hotels which were failing to perform.

While prospects look positive for prime hotels in prime locations, one cannot help but wonder about the slew of high-end golf resorts which popped up in random rural locations around Ireland at the same time as the country’s investors were looking at where in Switzerland their wives would most like a second home.

Close to 10 golf resorts were sold last summer, when fine weather and a taste for staycationing convinced some investors that there was worth to be had. However, many of them were sold at a significant discount (in one case EUR10m less than the 2010 asking price of EUR16m).

Some of these sites are being repositioned as outdoor adventure centres, but even with the current taste for all things outdoors, some will be left hanging and are likely to become second homes for those looking for a safe haven for their money. This time the deals are likely to be done in cash, rather than fantasies.

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