Government Property Investment Portfolio

Idbatterim

I know we have this with Nama, but with sale of high quality prime location assets such as the below at expected knock down prices, would it make sense for the government to bid on the likes of the below and other good investment opportunities, instead of letting private funds buy at knock down prices and sell years down the road at large profits?

http://www.independent.ie/national-news/288m-burlington-hotel-for-sale-at-a-knockdown


From todays indo...

A LANDMARK Dublin hotel, bought by developer Bernard McNamara for €288m in 2007, is up for sale at around a quarter of its boom-time price.

The 500-bedroom Burlington Hotel has been put on the market by receiver Paul McCann of accountancy firm Grant Thonton. Selling agent CBRE expects the Dublin landmark to fetch between €65m and €75m.

Paul Collins of CBRE told the Irish Independent that international buyers were most likely to lead the charge for the four-star property, which is situated on 3.8 acres. Potential buyers from UK, the US and the Middle East are expected to be interested.

He said it was likely to be late October or November before bids were formally received and that the hotel could change hands before Christmas. He said he'd be surprised if an international hotel brand wasn't among the ultimate operators.

The Burlington, which opened in 1972 and is affectionately known as the 'Burlo', is the largest hotel in Dublin city centre. It eclipses Bewleys hotel in Ballsbridge, which has 300 rooms and the Gresham on O'Connell Street, which has 288. The landmark hotel was one of the country's most expensive pieces of property when it was bought by Mr McNamara from the Jurys Doyle group at the top of the bubble. That sale was also handled by CBRE.

A joint venture between Mr McNamara and Bank of Scotland (Ireland) was granted planning permission in 2008 for a €1bn redevelopment that included the Burlington site. Mr McNamara had also bought adjoining land from German insurer Allianz.

Bank of Scotland did not comment yesterday on the sale.

The hotel briefly closed in January 2008, but it subsequently reopened.

It is estimated to be generating between €5m and €6m a year in earnings before interest, tax, depreciation and amortisation, which is a standard measure to identify the financial health of a business.

Occupancy

Mr Collins said that Dublin hotels had been performing well over the past two years, with sales-per-available-room having increased every month in the past 23 months. The Burlington currently has an occupancy rate of about 72pc.

But some well-informed sources believe CBRE will struggle to sell the Burlington for the asking price. They reckon a more realistic price would be between €40m and €50m.

"It needs about €10m spent on it," said one source.

While some rooms have been upgraded recently, as many as 300 probably still need to be refurbished. That could cost as much as €10,000 per room.

Mr McNamara resigned from his main construction firm in early 2010. He had been ordered by the High Court to pay €62.5m to investors under a personal guarantee he had given on money borrowed by one of his companies, Donatex. The firm had borrowed €98m to help fund the purchase of the Irish Glass Bottle Site in Dublin for €412m.

The court had been told that Mr McNamara, once one of the country's wealthiest people, was no longer a person of significant net worth.

The receiver was appointed to the Burlington Hotel earlier his year by Lloyds, which now owns Bank of Scotland. It also had receivers appointed to other properties bought by Mr McNamara, who owes Bank of Scotland about €200m.

andrew

The Government only owns NAMA because it has to, not because it's any good at property investment or wants to get into property investment. Why would it be a bad thing for a private company to make a healthy profit on these properties? Why should the government spend even more money which it doesn't have on something it doesn't need for a profit which, if it comes at all, will come a long time from now.

Idbatterim

The Government only owns NAMA because it has to, not because it's any good at property investment or wants to get into property investment.

I am aware and agree with that

Why would it be a bad thing for a private company to make a healthy profit on these properties? Why should the government spend even more money which it doesn't have on something it doesn't need for a profit which, if it comes at all, will come a long time from now.

Im not saying it's a bad thing for a private company to make a profit on it, but what's the harm with the government making a profit on it, if it can be bought at knock down prices and used at a later date to pay for pensions, infrastructure, paying off national debt etc?...

andrew

Idbatterim wrote: »

Im not saying it's a bad thing for a private company to make a profit on it, but what's the harm with the government making a profit on it, if it can be bought at knock down prices and used at a later date to pay for pensions, infrastructure, paying off national debt etc?...

I'd see that as the same as asking why Heinz don't invest in nuclear energy. It's just not what Heinz do. Sure they might have the money, but they really ought to not be in the nuke business. They don't have the expertise compared to other potential nuclear investors. In the same way, it's not the government's job to run businesses or make speculative investments, because it's not something governments tend to competently do.

Idbatterim

surely you don't have to be a genius to buy at a low price and sell at a high (er) price at some stage in the future, any moron could and did do it during the boom...

andrew

Idbatterim wrote: »

surely you don't have to be a genius to buy at a low price and sell at a high (er) price at some stage in the future, any moron could and did do it during the boom...

It's far from clear that buying the Burlington would yield significant profit, especially since it needs 10 million spent on it; it'd be a gamble on property. A gamble taking place while the government already spends more than it takes in; why is it better to spend money on a speculative investment now, as opposed to something else, or not spending the money at all.

In general though, just because the government could hypothetically make money from something doesn't mean it should; it's fundamentally not the government's job to invest in property.

Sleepy

And given the significant differences between public and private organisations, what's to say that the government agency would be able to turn a profit where a private company could?