Nama may have to keep 'zombie' hotels open

 

THE NATIONAL Asset Management Agency (Nama) may not close so-called “zombie” or loss-making hotels owned by developers that are being kept open to prevent tax being clawed back from investors in the hotels.

Among the €80 billion in loans being sold to Nama are associated loans owing on hotels built and owned by developers moving under the agency’s control.

Nama may be forced to keep loss-making hotels open to protect revenues across a developer’s business, according to sources with knowledge of Nama’s plans.

Informed sources said that the closure of hotels, which are benefiting from seven-year tax breaks for investors, could lead to “tax contamination” across the wider businesses of property developers.

They warned that tax changes to address loss-making hotels was an issue of Government policy, not a matter for Nama.

The first developers will be given a month to 45 days to submit business plans to Nama after their loans are transferred to the agency, showing plans for development projects, sites and investment properties, including hotels.

The Irish Hotels Federation has called for Nama to close up to 100 hotels to take an over-capacity of as many as 15,000 hotel bedrooms out of the industry to bring the hospitality sector back to viability.

“We would be encouraging Nama to look at closing down the surplus hotels because they would increase the value of the others on their books,” said John Power, the chief executive of the federation.

Given that the average hotel comprised 66 bedrooms, this could involve the closure of up 100 hotels, said Mr Power.

Economist Peter Bacon warned earlier this month there was an excess capacity of between 12,000 and 15,000 hotel bedrooms.

He said there had been a lack of “foreclosure against fundamentally insolvent hotel business” by the banks, which was undermining the viable hotels, and urged banks to recognise bad loans to hotels.

“It will be a long, long time before the industry becomes a sustainable industry,” said Mr Power.

About 27,000 new hotel bedrooms were built between 1999 and 2008, driven by tax breaks for investors in the industry, bringing the total hotel bedroom capacity in the sector to 60,000.

Mr Power said the hotels federation met Nama officials last November and hoped to meet them again after the first loans were transferred to the agency later this month. “We are not sure what their strategy is with hotels,” he said. “They are going to have a lot of hotels on their books. The question is are they going to let them continue to trade or put in receivers and sell them off.”

Loans totalling €17 billion linked to the top 10 developers, many of whom own extensive investments in the hotel sector, will be moved to the agency first before the end of this month.