No room at the inn as McKillen prepares for shareholder battle
Published 18/10/2011 | 08:00
The Belfast-born developer refuses to do any media interviews but now he is being forced into the spotlight as he battles to retain control of London's top hotels, writes Siobhan Creaton
Paddy McKillen got kicked out of Claridges in London this month. The reclusive property investor who is the hotel's biggest shareholder was told his bags were packed and he would have to find somewhere else to stay.
"That was the best news I could have heard," he says through a spokeswoman. "The hotel was full. They needed my room."
He doesn't mind being evicted from a top London hotel in this way but wants to make it clear he won't be leaving Claridges, the Connaught or the Berkeley hotels under any other circumstances.
McKillen is battling to retain control of the Maybourne Hotel Group that owns the three hotels. He owns 37% of it.
When Nama sold the hotels' €800m (£700m) worth of loans to Daily Telegraph owners Frederick and David Barclay at the end of September, it snookered McKillen.
The Barclays, who have built up a 28% stake in the business and already own a nearby plush hotel, the Ritz, are now in a more powerful position as they control the loans and could eventually squeeze him out.
Nama, he says, acted like "corporate terrorists" and with "vengeance" by selling the hotels' loans to the Barclays, who have been limbering up to take control of these trophy assets. It "facilitated a corporate takeover", according to the developer. Nama says it acted in the interests of the taxpayers.
His lawyers have lodged papers in the High Court in London to kickstart a court battle with the Barclays to protect his investments.
McKillen knows he is facing an uphill battle as Nama has already closed the deal and cashed the Barclays' €800m cheque. It claims it was a good deal for the taxpayer and that it made a profit on the sale.
As he says "you can't put the toothpaste back into the tube", but insists he has been treated shabbily and that his experience doesn't augur well for Irish taxpayers who hope Nama will eventually make a profit.
McKillen says the fight to remain at the hotel group is "deeply personal. This is the most important project I have ever been involved with". He may also challenge Nama in the Irish courts arising out of its latest moves.
It would be fair to say McKillen isn't Nama's favourite person.
He embarrassed the agency earlier this year when he won a high-stakes battle to stop it from taking other 'good' loans associated with some of his properties. These loans were being repaid and were secured against valuable properties where blue-chip clients were paying the rent, he said. They weren't risky loans and he believed they had no place in a bad bank.
The Supreme Court accepted many of his arguments and criticised Nama's dealings with him. That case could end up costing the Irish state up to €7m (£6.1m) as McKillen was awarded all of his legal costs.
The case gave the public a glimpse into how Nama goes about its business. Developers whose loans have been taken over are not allowed to publicly discuss what is going on so the only information that filters out comes directly and unchallenged from Nama.
The agency is expected to come down hard on developers and claw back everything it can for hard-pressed Irish taxpayers.
McKillen claims he is different to most of the other big developers who are in Nama.
He hasn't purchased any property in Ireland since 1998 - long before prices went crazy - and hasn't left any ghost estates behind.
The man who developed the Jervis Centre in the 1990s and who part-owns the Treasury Building where Nama is headquartered in Dublin has built up a property empire that is mostly outside of Ireland.
He owns office blocks in the US, the Four Seasons hotel in Milan and shopping centres and other investment properties from London to Asia to Argentina.
His previous court case had nothing to do with the hotels' loans but related to other debts Nama wanted to transfer from the bust Irish banks. He was one of Anglo's biggest borrowers.
As the court battle raged, McKillen used the time to pay down huge chunks of the disputed loans, which will now remain outside of Nama.
He escaped its clutches on that occasion but feels he is now being penalised for so doing. The hotels' loans, which were owned by McKillen and the other investors, who include financier Derek Quinlan, were transferred into Nama from Anglo Irish Bank and Bank of Ireland last year at a discount, although he claims neither bank wanted to hand them over.
They were 'good loans' secured against some of the world's most valuable hotels. The two banks could have made money on them but they went into Nama, he says.
Since then, McKillen's dealings with the agency have been frustrating. Nama agreed to refinance the €800m (£700m) loans initially for two years, he says, but then changed its mind and instead reviewed them every three months.
"I can't run a business like that," he says. This did not suit his long-term business model. Having the hotels associated with a bad bank was immediately negative and prompted some customers to cancel weddings and other functions at Claridges and its sister hotels even though they were never in financial trouble, he says.
This had abated and he claimed the hotels were thriving.
Then, just a few weeks ago, McKillen says he was "shocked" to receive a phone call from Nama to say it had sold the entire €800m worth of loans to the Barclays.
The agency gave him just '57 minutes' notice of a deal that could drastically affect his investment.
He says the €800m loans were about to be refinanced by other banks just as Nama was doing the deal "behind his back" with the Barclays.
Nama's latest actions have left him with no other option but to return to the courts, he says.
He believes the deal has handed British investors the chance of a lifetime to make a killing from assets owned by an Irishman.
He believes the agency is a disaster and will ultimately lose billions rather than make money for Irish taxpayers. Finance Minister Michael Noonan should dismantle it, in his view, or at least ensure it is being held accountable for the way it conducts its business.
He describes the London hotels as 'institutions' that come on the market once every 50 years. Claridges, which is 200 years old, is booked up until Christmas and there is no chance of getting a penthouse or a room there for much of next year because of the Olympics.
Its guests range from kings and princes to movie stars, rock bands and wealthy business people and most stay over and over again.
McKillen claims that Nama has now helped the Barclay brothers to oust him from the hotel group at a time when they are trading strongly and have either been extensively renovated and extended or have secured permission for a luxurious makeover. It is unique for one group of investors to own a bunch of top hotels in one of the world's busiest cities, he says.
"There is no other city in the world where one owner has more than one of the top hotels," according to McKillen. "It would be like one person owning the Ritz in Paris as well as the George V and the Hotel Plaza Athenee," he claims.
We can expect to hear a lot more about the hotels, Nama and the equally reclusive Barclay brothers in the months ahead when this gets thrashed out in court.