HBR to help fund pubs & hotels under unsustainable debt

Global equity funds Blackstone and Kennedy Wilson’s move into Ireland by investing in big hotels like the Burlington and the Ritz-Carlton as well as other large projects indicates a renewed interest in the Irish hospitality industry.

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“Often a large player like Blackstone coming into the Irish market will attract other players,” commented Paul Collins of CBRE Dublin recently.

Now, HBR, a consultancy company headed up by Martin Connolly and Gerard Murray and comprising individuals with “vast experience in the Hospitality business”, has agreed with another equity house to create a fund to purchase freehold smaller hotels and pubs that are trading profitably but carrying unsustainable historic debt. The businesses will be purchased from banks and NAMA at substantial discounts and HBR will then lease back the businesses to the current owners or management team with an option to purchase at a later date.

The rent will provide a return of 8% to 10% on investment.

There are currently around 50 small hotels and pubs in Ireland in similar positions in prime locations.

Bank of Scotland Ireland (BoSI) and KBC, who lent to the hospitality business in the boom, have made it clear they want to exit Ireland as soon as possible. Certus (formerly BoSI) has stated that it has 270 small hotels and pubs which it hopes to dispose of this year at substantial discounts. A number of them are in Dublin. The Irish banks and NAMA also have similar businesses they want to dispose of.

But the problem, believes HBR’s Martin Connolly, is that due to their experience in the Irish market over the last few years banks will not release their lists until they can see proof of funds. The banks have been involved in many deals only to see the deal collapse because the money hasn’t been forthcoming or the terms have changed at the last hurdle.
Because of this HBR doesn’t know which businesses to approach and — due to the requirement of the equity fund – cannot show proof of funds until it knows the potential businesses that could benefit.

HBR will seek out the prime opportunities in Ireland, mainly Dublin and as the business progresses, monitor performance with a view to selling the business back to the operator within three to five years. The role of HBR will be to evaluate individual opportunities taking account of management team, location, current trade and profitability and historic performance.

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