‘Tetrarch takes on projects that others won’t . . . it requires a bit of bravery’

With 1,500 employees and €450 million of assets to manage, Tetrarch chief executive Michael McElligott is glad his daughter made him take up karate

Michael McElligott photographed at Guild House, IFSC Dublin. Photograph: Brenda Fitzsimons/The Irish Times

Michael McElligott photographed at Guild House, IFSC Dublin. Photograph: Brenda Fitzsimons/The Irish Times

 

Like many senior executives, Michael McElligott strives for the perfect work-life balance, and it has taken him out of his comfort zone recently.

“I’ve taken up karate,” he says with a chuckle. “My seven-year-old daughter doesn’t like to horse-ride, so I asked her to pick an activity that we could do together and she came up with bloody karate.

“So Saturday mornings I do karate. I’m three weeks into it. I’m actually enjoying it . . . It’s very good for you.”

The low-profile Kildare man works about 70 hours a week running Tetrarch (pronounced Tetrark) Capital, a specialist investment group whose portfolio of assets includes a number of high-profile Irish hotels, a stake in stockbroker Merrion Capital, and a number of offices dotted along a section of the red Luas line in Dublin, from Capel Street to Macken House in the docklands.

The group was previously known as Brehon Capital, which began life in 2011 with the purchase of the Marker Hotel and Residences in Dublin’s Grand Canal Harbour.

At the beginning of this year, co-founder Kevin McGillycuddy left to pursue other interests, taking the Brehon name with him.

“In reality, what was Brehon is now Tetrarch,” McElligott says. “Company number 503445 simply changed its name.”

Why did McGillycuddy leave?

“Last year it became apparent that Kevin, on the one hand, and myself, Jim Byrne, Damien Gaffney and my sister Ciara, all of whom are partners in the business, had different objectives for the company. There were no differences. Kevin wanted to do a lot of development stuff.”

According to McElligott, McGillycuddy was “very keen” to acquire a 400-acre development site in Cherrywood, south Dublin last year. It was eventually sold to Hines for a reported €280 million.

“It was a very ambitious project, ambitious for Hines, let alone for us,” McElligott says.

Brehon was “10 per cent-plus off the pace” as an underbidder. “Kevin had brought in a potential funding partner. But it was a heavy lift, there were massive due-diligence costs, huge execution risks, and you were a long way from realising your return.

“It became apparent that Kevin’s ambitions were more on the [property] development side and ours were more on the investment side. So we came to a decision that we would separate out.

“All of the employees are still here. All the assets under management are still managed by Tetrarch.”

The Brehon name was McGillycuddy’s idea, so he got to keep the brand and now runs an entity called Brehon Capital Partners.

“We provide Kevin with resources and support for due diligence,” McElligott says.

Why was Tetrarch chosen as a replacement name?

“We wanted something that resonated with one or more of our assets in the portfolio,” McElligott says. It’s a reference to a group of four rulers in old Roman times.

“Tetrarch was also one of the most famous Irish stallions, who stood in Mount Juliet. The bar in Mount Juliet is called the Tetrarch Bar.”

Tetrarch acquired Mount Juliet in mid-2014 for an estimated €15 million and has ambitious plans for the Co Kilkenny hotel and golf resort. “We got planning for our extension about five weeks ago,” McElligott says.

New bedrooms and suites

“We’ll be adding 60 new bedrooms and six suites to the Hunters Yard complex, which is going to become the hub of Mount Juliet. We’ll be delivering a new clubhouse to [golf] members – they’ve never had their own clubhouse.

“And we’ll be delivering a larger Kendals diningroom, which we think needs to be bigger for larger functions and events. We can’t cater for large weddings and groups at the moment because of the facilities.”

The investment in Mount Juliet will be “north of €10 million” and is slated to start in the fourth quarter of this year.

Mount Juliet is one of seven hotel investments held by Tetrarch, comprising about 40 per cent of its portfolio.

Its Marker acquisition four years ago is the stuff of legend. The company sold the Marker Residences (effectively the adjoining apartments) for €50.1 million, which essentially covered the original acquisition and subsequent fit-out costs for the hotel and apartments.

The net effect is that it got the five-star Marker Hotel for free.

“That’s what everybody says and it’s hard to deny it,” McElligott says. “There was nobody willing to take it on [in 2011]. It was a different time and you needed to be brave to take it on. I’ve had lots of people telling me it was the deal of the decade, but at the time there were plenty telling me that I’d overpaid for it.”

The hotel portfolio also comprises the Powerscourt property in Enniskerry (formerly the Ritz Carlton), the Citywest in Saggart, the Mount Wolseley resort in Carlow, the Killashee, near McElligott’s home in Naas, and the Clonmel Park Hotel in Tipperary, which became part of the family earlier this week.

Tetrarch acquired the Jacobs Inn hostel in Dublin late last year for €7 million. To many, it seemed a curious addition to the portfolio, given that it operates at the other end of the comfort spectrum from the Marker and the Powerscourt. But McElligott says it was Dublin’s first purpose-built hostel, and that it is well located (beside Busaras) with good occupancy levels. It just needs some modernisation and better yield management, which is Tetrarch’s area of expertise.

Mixed bag

On paper, Tetrarch’s hotels are something of a mixed bag, targeting different segments of the market.

“They are all very different, and we take pride in that,” McElligott says. “Every deal we look at has to make sense in its own right. We will go in and look at how they purchase, how they market, their rostering, their mix of part-time and full-time staff, and help with their efficiencies.

“We absolutely empower our local management teams. We have a very skinny group structure in terms of our hotels because we know that we’ve hired the best people, we’ve given them the budgets and the clarity and the visibility in terms of what we buy. They have absolute transparency for what we’re paying Pallas Foods for a slab of beef, or Ballygowan for water or Heineken, and so on.

“We have no plans to become a hotel operating platform that will provide services to third parties.”

Hotels are one of four prongs to the Tetrarch strategy and McElligott would like to add a budget hotel and another hostel in Dublin.

Its strategy to date has been to target “problematical assets”, but McElligott doesn’t rule out building a hotel or hostel if the right opportunity come along and the company has had talks with boutique UK chain Z Hotels about opening in Dublin.

Another focus is the Ulysses portfolio, which originally comprised 25 properties that were previously associated with developer Liam Carroll and which stretch along the red Luas line in central Dublin.

Most of the empty office space has since been let, and Tetrarch has also disposed of some properties in this portfolio, notably Grand Canal House, which was sold for €6 million.

McElligott is keen to add income-producing properties in adjacent sites or ones that it could turn into income-producing assets within 18 months.

“ We think property in Dublin 1 [north of the river Liffey] is undervalued relative to property in Dublin 2 [on the southside]. We’ll play in that space,” he says.

Another leg to the stool is Citywest, where Tetrarch already owns 220 acres around the Citywest Hotel, which was developed by the late Jim Mansfield.

“We’d like to consolidate our ownership out in Citywest,” McElligott says. “We will look at other bits and pieces of property in and around there. It makes sense for us.”

Tetrarch is planning a €10 million investment at Citywest to enhance its facilities.

The fourth prong of the Tetrarch strategy is to look at a business park in Dublin or adjacent to the capital.

“We want to build up a base of long-term assets,” McElligott says. “If you trust in the recovery here, there probably is some value in buying a business park and investing in it.”

Assets under management

McElligott says Tetrarch has assets under management of about €450 million. He’s coy on how much exactly these assets cost to acquire, but the firm has deployed between €60 million and €80 million of funding for Midwest Holding, the Swiss holding company of European investor Leo Spitzer, and €200 million for US asset manager Pimco.

Tetrarch’s owners and family have also invested in deals and the company is “modestly leveraged”, but whatever way you shake it, the group and its backers appear to be well in the money.

This is especially when you consider that it has achieved €90 million to €100 million in asset sales.

“The returns we look for is a function of the risk we take on,” McElligott says. “We’re willing to take on the types of projects that other people won’t. It requires intensive asset management and it requires a bit of bravery in most instances.”

McElligott stresses that Tetrarch will be a long-term player in this market. It looks for assets that it can work through for seven to 10 years, and it won’t sell any of its hotel assets for at least five years from now.

“We’ve had a good run and we’ve bought well and we’ve bought early, but we have no significant plans to sell assets,” he says.

McElligott was raised in Naas. His father hailed from Kerry and worked for Irish construction group Sisk; his mother was an artist. He was schooled at Clongowes and had ambitions to be an architect. “I dabbled in architecture for two years in Bolton Street, but saw the light and realised I wasn’t a good enough, to be frank.”

He switched to business and law in University College Dublin, funding himself through a part-time job in Brown Thomas selling Ralph Lauren clothes.

His first “real” job was with Irish law firm Mason Hayes and Curran, where he specialised in telecoms and technology. This included a six-month secondment to New York in 1999 with a firm called Weil, Gotshal and Manges. “I thought long and hard about moving to the US then, but my wife was in the rag trade and she couldn’t get a working visa. We were going to go over in January or February [2000] to Palo Alto, [in California], and I was going to work as a technology lawyer. Thanks be to God she couldn’t get a visa and we couldn’t make it because the [dotcom bubble] crash happened about two months later.”

Introduction

In 2001, he introduced himself to Irish financier Paul Connolly, a close business associate of Denis O’Brien, at a technology conference in Boston and hinted that he might be interested in moving into the business world.

“Paul’s dad, Neil Connolly, was the CFO [chief financial officer] of Sisk and actually hired my dad Sean [for Sisk],” he says.

A role came up at Connolly Capital in 2002 and McElligott was invited in for a coffee. His three years there involved buying radio stations in central and eastern Europe for Communicorp, the holding company for O’Brien’s extensive radio assets. McElligott also spent time in the Caribbean, working on licence applications for Digicel, O’Brien’s then fledgling telecoms group.

McElligott says he was “one step removed” from O’Brien at the time, but feels “lucky” to have been involved in these deals.

He subsequently spent six years with Mere Capital, an investment group involving former IBI Corporate Finance executives Neil Hughes and Peter Crowley.

“I did some property stuff in the UK,” McElligott recalls. “Not everything went spectacularly, but there were no horror stories.”

It began to be wound up in 2009, following the financial crash here, with McElligott “looking after”certain assets before becoming part of Brehon in 2011.

Years of working long days and late nights led to “burnout” last year and a spell off work to recharge the batteries.

“What I was poor at before was managing my weekends and my personal time. The older you get, the wiser you get on that front. I used to work one day a weekend religiously. I won’t do it now,” he says. “I used to come home and work till 11pm or midnight every night. I avoid that now. The kids get me to put the iPhone away.

“It’s a sacrifice, so all of this better be worth it. The way I rationalise it in my head is that we have about 1,500 employees, I’ve 20 staff out there in the office. We do good things and we create a lot of good for all of the people that work for us. You can’t do that on a part-time basis.

“Would I like to be here doing this in 10 years’ time? No. Someone needs to take over in three, four or five years’ time, but that’s a discussion for another day.” CV Name: Michael McElligott Job: Chief executive, Tetrarch Capital Age: 43 Lives: Naas, Co Kildare Family: Married with three children

Hobbies: Golf and watching rugby and soccer

Something we might expect: The Kildare man enjoys horse-riding

Something that might surprise: Spent two years doing architecture before switching to a business and law degree in UCD