Solution to insolvent hotels is to 'bulldoze'

BANKS NEED to recognise that they funded many hotels that are no longer solvent and that the best decision now is to “bulldoze them”, an insolvency practitioner has said.

The experienced accountant, who is involved in managing a number of hotels, said banks were reluctant to make the hard decisions because of the size of the losses that have to be faced.

To put the sector in context, he referred to the car dealership sector. New car sales dropped from approximately 150,000 in 2008 to about 57,000 in 2009. A large number of car dealerships quickly went out of business.

“The business resized itself very quickly. Late last year registrations started to pick up again and now you have a maintainable amount of dealerships for a maintainable amount of registrations.

A similar thing has to happen in the hotel sector, he said. However, the sector has not reacted so quickly because the decisions involved are more drastic, he said.

Whereas a dealership might involve €500,000 in capital expenditure and the property might be well-located, the capital involved in a hotel can be more like €10 million or €20 million.

“Hotels are usually not in a good location and usually there is no prospect of a change of use. Who in the bank is going to say you know we were totally wrong to lend the money for that hotel, let’s bulldoze it?”

It would be the correct decision, but it is a difficult one, he said.