Monday, October 18, 2010
Dear Reader,
The Irish economy and real estate market is on its knees. As members of the euro zone, we have a legal obligation to keep our budget deficit to 3% or less of GDP. This year, our deficit will be 33% give or take (this figure includes injections into failed, now nationalized banks. Strip out these injections and the deficit would look more like 14%). On the property front, the news continues to deteriorate since I reported from Ireland in August. The market is stagnant, with falling prices..and Fitch predicts they could fall even more.
In my August dispatch, I told you that I saw an opportunity for someone who could figure out an alternative use for the excess supply of both hotel beds and residential homes.
In 2006, the Blarney Golf Resort with a John Daly-designed golf course, opened in my home neighborhood close to Cork City. Forty million euro was spent building the hotel, golf course and golf lodges. The golf lodges, that were to be rented through the hotel, were selling for 425,000 euro plus.
The resort has:
- An 18-hole John Daly-designed golf course and clubhouse
- 54 golf lodges (18 of which were sold)
- 62 deluxe rooms
- A conference center
- Leisure center and spa, with gym, swimming pool, etc
The project has failed. A receiver is charged with keeping the business running as a going concern while he tries to find a buyer. The proceeds of the sale will then be divided between the creditors. Many other Irish hotel and resort operations are in a similar situation.
The receiver is asking ten million euro for the resort, including the 36 unsold golf lodges.
This is just 25% of the original investment in the resort. If you sold the remaining 36 lodges for a touch over 60% of the original asking price (278,000 euro) you would recoup the entire current asking price...giving you the hotel complex and golf course for free.
These are nice little homes. Each lodge has one double bedroom with private bathroom plus one twin bedroom with private bathroom, both situated on the second floor, with a balcony overlooking the resort. The ground floor of each lodge has a fully fitted kitchen/dining room plus living room. They are fully fitted out...right down to the linens and plasma TV. They rent through the hotel.
The reality though is that selling these homes (almost at any price) in the current environment will be tricky. First, any buyers need to make sure that the resort is on a solid footing. The hotel and golf course are facing a competitive market and a race to the bottom in terms of room rates, membership subscriptions and green fees. This year there are 10% fewer Irish golf club members than last. People are letting their golf club membership lapse as they come under financial pressure.
In my view it's a big ask to make this resort work in its current form. There's an angle though for someone...
This resort is twenty minutes from Cork City and twenty-five minutes from Cork's international airport. It's a great place to live, grow up or grow old. All other things being equal, this is where I would choose to live myself.
Maybe people would like to retire here from London or Frankfurt...or the US. Maybe people might come here to recuperate from illness. Maybe a group that holds a lot of corporate events might be interested in a base to call home. Remember, you can fly to three London airports from Cork in less than an hour.
Even just selling the remaining lodges at a super knock down price of 200,000 euro would recoup most of your outlay. These lodges come with tax breaks. The buyer of a 200,000-euro lodge could pay 80,000 euro less in taxes in the years following the purchase. Who knows? Do a good deal and you might even recoup the entire outlay. I doubt buyers for the resort are lining up. I expect the resort might sell for much less than the asking price.
There's a strong business here for someone who can figure out a use for the resort, or how to bring people here. With the tax breaks associated with the resort, you'll pay no tax (for the duration of the tax breaks) on several categories of Irish income. That may include certain categories of income generated from sources other than the resort itself.
I'm not saying that this is the best opportunity on the market here. Thing is, I'd love to hear any thoughts you have for how to make opportunities like this work. I'll share them with fellow Pathfinder readers...or not (it's up to you). E-mail (JavaScript must be enabled to view this email address), and let me know your ideas.
Ronan McMahon
P.S. The way to find the best property deals in Ireland is to read online news sources for notification of creditor meetings and receiver sales.
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