Not enough rooms at the inn to cover hotel's huge debts

YOU MAY only know of the Clarion Liffey Valley hotel in Dublin as you fly by it on the road to Galway. It is a good example of the debt hotels are having to shoulder, at a time of lower room rates and sharply reduced values, far lower than the levels at which investors took a punt on this popular type of investment in the good times.

It would have been a good case study for last week’s report from Alan Ahearne, the NUI Galway economist and former adviser to finance minister Brian Lenihan. In a report commissioned by the Irish Hotels’ Federation, Ahearne said the country’s hoteliers owed banks €6.7 billion, or an average of €113,250 per room, and this had to be cut by at least €2.5 billion – or hotel profits had to double – if the industry was to have a sustainable future.

The 360-bedroom Clarion has quite a stack of debt sitting on it in various forms – about €60 million in total, or €166,666 a room.

Co Clare man Sean Lyne was the developer. He borrowed €20 million from AIB and raised another €30 million from about 40 investors to build it. Each invested an average of €450,000, also borrowed from their lenders.

The investment was attractive as it came with tax breaks; each investor could offset the rental income earned from their three bedrooms – which constituted a “suite” under the investment plan – over seven years. In year eight, Lyne would buy out the investors, who are mostly owners of small businesses.

Lyne also brought in a fellow developer, the ubiquitous Paddy Kelly, who had invested in a other hotels through similar structures. Kelly has debts of about €10 million owing to Dutch-owned ACC Bank on 15 suites. Hotelier Frankie Whelehan’s Choice Hotels still runs the hotel under the Clarion brand for Nama.

Investors were originally to be paid €18,000 a year in rent per suite, later rising to €22,000. The tax breaks started in 2004 and would end in 2011 for the first investors in.

The debt stack fell in March 2011 when the National Asset Management Agency put a receiver into the company behind the hotel over Lyne’s €20 million debt originally to AIB.

Now there is a fight over the remains of this dreamy boom-time project. Receiver Kieran Wallace of KPMG, one of Ireland’s busiest insolvency practitioners, was appointed for Nama. Another, accountant Martin Ferris, was installed as receiver for ACC to try to recoup Paddy Kelly’s debts, while a third, Simon Coyle, is representing the 40 investors.