Aug. 31 (Bloomberg) -- The Glashaus hotel used to be a symbol of the regeneration of one of Dublin’s toughest neighborhoods. Empty and shuttered, it now represents one of the toughest economies Ireland has ever endured.
Developer Liam Carroll opened the boutique hotel in Tallaght in the west of the city three years ago at the height of the country’s decade-long real estate boom. Now, creditors have taken control of much of Carroll’s empire and the Glashaus is closed, as is the nearby 186-room Tallaght Cross Hotel.
“It’s a game of last man standing,” said Paul Gallagher, president of the Irish Hotels Federation in Dublin. “When corporate traffic slowed up and the recession took hold, very quickly it became obvious we had an enormous problem.”
At least 200 hotels opened during Ireland’s decade-long economic boom, leaving a glut of rooms and mountain of debt as the number of visitors dwindles. While some establishments cut their losses and shut, others are lowering prices to stay in business and avoid repaying tax breaks if they were to close.
Irish hotel occupancy slumped to about 54 percent in 2009, the lowest level since the early 1980s, as the economy fell into its worst recession on record, the hotels federation said. In 2007, the height of Ireland’s boom, the figure was 64 percent.
The numbers of trips to Ireland fell 20 percent in the two years through June 2010, the Central Statistics Office said on Aug. 27. Hotels have almost 7 billion euros ($9 billion) in bank borrowings, equivalent to about 111,000 euros per bedroom, according to figures from the industry group.
Sixty percent of hotel loans at Allied Irish Banks Plc, the country’s second-largest lender, are classed as “criticized,” either closely watched or in trouble, Managing Director Colm Doherty said Aug. 4. Britain’s Lloyds Banking Group Plc, among the biggest lenders to Irish hotels, said this month it’s pulling out of Ireland.
The economy will grow 1 percent this year after contracting about 11 percent in the last two years, Ulster Bank in Dublin forecast on Aug. 26. Unemployment will rise to 13.3 percent this year from 11.8 percent in 2009.
Many hotels that opened as Ireland’s economy tripled in size between 1997 and 2007 were given tax breaks provided they remained open for at least seven years.
Such hotels are slashing prices in a bid to stay open, undermining longer-established venues, said Joe O’Flynn, owner of the Rathsallagh Country House Hotel, south of Dublin.
“It’s a zombie plague,” O’Flynn said. “I can’t compete. If that happens do I join the zombies?”
In other cases, banks are keeping alive hotels to avoid crystallizing losses on loans, hoteliers said.
Ireland’s National Asset Management Agency, created by the government to purge banks of risky real-estate loans, has taken control of 48 loans secured on hotels. In the latest batch of loans, hotels accounted for 23 percent of the assets bought by the agency.
“The big problem that the industry faces at the moment is that banks are keeping hotels open that would not normally survive,” said Charlie Sheil, manager at Dublin’s four-star Gibson Hotel. “They are being propped up by the banks, which is causing major damage to a lot of the good hotels.”
The Gibson, whose heated rooftop terrace looks out over the city’s docklands area, opened two months ago with a special rate of 99 euros per room per night. It considered pushing back its opening until later in the year, Sheil said.
Back in west Dublin, two brown velvet chairs block the revolving doors of the Tallaght Cross, the centerpiece of a vacant office and retail development. It may not be the last to go, said Gallagher at the Irish Hotel Federation.
“It’s inevitable,” Gallagher said. “If the sector is going to survive, some hotels are going to have to go.”
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