Zombie hotels enjoying long-awaited revival

The zombie hotels dotted across the landscape are beginning to revive or die.

Four years ago, the country’s debt-laden hotels were contending with falling visitor numbers and new competitors financed by surging mortgage lending during the Celtic Tiger boom. That’s when zombie hotels emerged, slashing room rates to stay alive and keep tax breaks granted during the boom.

Now increasing demand for rooms, led by Dublin, is prompting investors from US billionaire John Malone to Russia’s richest woman to buy hotels here.

Dublin generated more revenue growth per available hotel room than any other major European city in the 12 months through June, according to a survey by lodging-data provider STR Global.

“There’s a fair bit of capital in the marketplace looking for what people now believe is a good investment again,” said Kevin McGillycuddy, managing director of Brehon Capital Partners.

The Dublin-based private-equity firm and partner Midwest Holding bought the Ritz-Carlton Powers-court near Dublin in February and opened the five-star Marker Hotel in April.

Brehon might also have purchased the city’s Trinity Capital Hotel if its bid hadn’t been trumped by Malone, chairman of Liberty Global. Malone, who controls the international cable company, paid about €35m for the 195-room property this month, said a person with knowledge of the transaction.

“It’s a personal investment with friends,” Malone said.

Tourism in this country was devastated by the global financial crisis, with visitor numbers plunging 23% between 2008 and 2010. Demand for hotels evaporated, causing the occupancy rate to fall to a 16-year low of 59% in 2009, according to a survey by Crowe Horwath, an accountancy and consultancy firm.

Since then, visitor numbers have begun to pick up. The occupancy rate climbed to 64% in 2012 from 61% a year earlier, Crowe Horwath said.

Dublin’s hotels did even better, with the rate rising to 74% from 71%.

That’s reflected in the property market. Hotel values have climbed about 20% in central Dublin since Sept 2011, more than any other part of the property market, brokers CBRE Group and Savills estimate.

“Trade is very strong,” said Peter MacCann, general manager of the five-star Merrion Hotel.

“We have to be careful — and this goes for every hotel — that we don’t get greedy. We have got to protect the business to get it to come back.”

Zombie properties are beginning to disappear because the owners no longer have a financial incentive to keep them open. The number of hotels is set to drop for the fourth straight year, falling 8% from a peak of 915 in 2009, according to Fáilte Ireland.

As many as 300 of 800 hotels around the country are in financial difficulty, Pat McCann, chief executive of Dalata Hotel Group, said in May.

“Ireland seems to have lost its sparkle,” he said. “We punched above our weight during the Celtic Tiger and we need to recapture some of that sparkle.”

For many banks, that means taking losses on loans handed out during the boom. The lenders often take control of struggling hotels, write off most of the debt and then look for a buyer. Alternatively, they may forgive all or some of the debt and allow current owners to stay on.

With occupancy levels rising, overseas investors such as Malone and Yelena Batu rina, Russia’s richest woman, are checking in. Baturina bought the Morrison Hotel in Dublin for around €22m last year.

Owners have sold or agreed to sell 21 hotels in Ireland for more than €170m so far this year, Savills said in a report this week. More than €300m of lodgings may be sold by Dec 31, according to Tom Barrett, head of Irish hotels at the broker.

Ireland’s enduring popularity as a tourist destination won’t prevent more hotels from succumbing to mounting debts, particular outside hotspots like Dublin.

However, those that survive will benefit from the industry’s shake-out.