Vulture Funds are Circling
Goldman Sachs has purchased yet another portfolio of loans included in the Project Nadal loan sale by Ulster Bank.
This portfolio includes the Radisson Blu Hotel, near St Patrick's Cathedral in Dublin; The Radisson Blue Hotel at Dublin Airport; The Hilton Hotel in Kilmainham, close to Heuston Station; The Arlington Hotel at Lord Edward Street, Dublin; and the five-star Merchant Hotel in the centre of Belfast.
As reported in the Sunday Business Post, Goldman Sach’s strategy is to sweat these assets for a period of time and then sell these assets or float them on the stock market which will no doubt net them a huge profit. This is great business for Goldman Sach’s and they have an excellent track record in delivering these opportunities. Why wouldn’t they? It will make them millions!
It is not, however, great business for the current owners who have built up these businesses over years of seriously hard work. This strategy by Goldman Sachs demonstrates how vulture funds got their name.
Having dealt with these vulture funds on numerous occasions on behalf of borrowers, we have a clear insight into how they work. Their modus operandi is quite simple: they want as much financial return from the borrower/asset as possible. Negotiating with the vulture funds will be a difficult process as they hold most of the cards and can demand repayment of the loan at any time, as most of the original loan agreements are in default due to the property crash. The borrower has to demonstrate to the vulture fund very quickly how they can bring value to the them or within 3-4 months the funds will have moved the borrower out of the equation. That's how they work!
The only way out for the majority of borrowers is to try and refinance their loans with another lender or capital partner. As most of the Banks in Europe are broken, they have little or no interest in lending to commercial property or hotels due to the new Basel banking rules. Alternative finance is therefore hard to source at this time; however, it is possible.
GDP Partnership have sourced funding of £30m in the last three months to assist borrowers retain control of their assets and life’s work. This has been hard work, but we have helped several international funds understand that Ireland, both North and South, is a great place to invest for the long term. This is different to the vulture funds that have taken a short term view and want to get out of Ireland in the next 2-5 years.
Only last week, Ulster bank increased their most recent loan sale from £2bn to just over £6bn of assets. This trade will likely go through before the end of the year. This is a clear indication of the strategy RBS now has for Ulster Bank here, and although painful for the bank and its balance sheet, you can understand why they might want to go down this route.
However, Northern Ireland is currently dancing on the head of an economic period of disaster with £850m of cuts due to be announced this week. The next six years will see the austerity program continue to be rolled out. Bearing all of this in mind, Ulster Bank's most recent announcement will only add to the economic woe of the country. Already, we have been inundated with SME's who are now part of this loan sale who are really concerned about their businesses, and so they should be.
Alternative finance is vital to truly restarting the economy across the whole island of Ireland and not just the major cities. By being proactive, entrepreneurs and established businesses can source new funding for their business.
Don’t wait for the Vultures to pick over the carcass… act now.