Garvan O’Doherty heads one of Northern Ireland’s largest hospitality and property groups. He explains why careful investment pays, especially in a property |recession, and the value of doing quality market research.
Your business is a mix of property and hospitality investments. How did this mix come about?
In the mid-80s the company began with retail operations in the hospitality sector — bars and pubs — and then moved onto restaurants and night clubs, and hotels and property investments. We invested the proceeds from our retail operations into a portfolio of commercial properties, which we hold for the long term. In 2000, we changed our focus in terms of both sector and geography. We sold most of our bars, opened a chain of off-licences, and invested more in hotels. There was also a drive to develop outside Northern Ireland.
Why did you do this?
It was to focus more on investment. We wanted to avoid a dependence on one area, or one sector. Diversity was the key, and we were concerned that the Northern Ireland economy was not sustainable. Garvan O’Doherty Group took the opportunity after the ceasefire to sell assets into a market where prices had improved.
Will you continue to mix property investment with trading in the hospitality sector?
Yes, we will. Trading operations have always subvented our company’s investments during either development or non-rental periods. Trading allows you to do investments. We have never been caught with land bank problems, and there is a very, very strong cash flow.
Can you explain how and why you changed your trading focus?
We had 14 bars, which changed down to two bars, moving up to three hotels and five off-licences. In 1998/99 that there was something wrong in the bars sector. We did the research and concluded that the bar sector was in trouble. We looked at the large hospitality companies and realised their operating model was flawed. So the business moved away from bars, and instead into off-licences and other growth opportunities.
Why is your business successful?
We are not rigid, but rather very flexible with our operating model. Being able to react quickly is important. We have a structure that enables us to respond operationally and strategically to different business trends. We have always made sure that no single |investment or activity could |expose the group to failure.
Our big strength is our financial reporting, which is very detailed, and is provided to all the banks we work with. In 2006, Garvan |O’Doherty Group commissioned a review which said we were very under-geared and could increase our borrowing, but there have |always been substantial reserves and a sinking fund.
What is the impact of NAMA for you?
It is positive because it presents opportunities. None of our assets are going to NAMA. But there will be opportunities to purchase distressed assets at realistic market prices, rather than at the crazy prices that applied before. With credit availability tightening, it means that the capital available to competitors is much less.
What do you expect to happen in your trading sectors now?
The housing market is still in trouble, and will be for some time. Disposable income for consumers will be hit severely. Consumers will trade down in terms of |spending.
The cost of living will increase. So we will concentrate on three-star provision at the moment. There will be opportunities to meet specific demands.
You must have products that offer variety. The opportunities will be tremendous for those who can survive the downturn.
This provides the unique window of opportunity of a generation for those who build a stable business to expand.
What are your greatest challenges?
In Northern Ireland, it is the |political environment. Although 70% of activity is in the public sector, it has become more and more frustrating dealing with the civil service, because no one will make any decisions. For those of us who want to undertake |projects, it seems that the old lethargy has been exacerbated by a fear of taking decisions, rather than finding ways to add value.
Which public bodies are you thinking of?
Several, but particularly the Planning Service and district councils. There should be legal requirements on public sector agencies to deal with matters within a defined period of time. We need to be realistic about the North’s economy and bring in |dynamic public servants who can help to create a vibrant private sector.
There is a need to accept that major public spending cuts are coming. We need to have an honest discussion about how we expand the North’s economy and create a public sector that will service the public, devise a third-level education system to support the jobs market and a private sector that assists in developing a self-sustaining economy.