Nama became the biggest lender to the Irish hotel industry this week when it took over loans advanced to the developers of 22 hotels, bringing the total number of hotels on its books to 35.

Some of the hotels involved are based in the UK, but the majority are located in Ireland. Some are individual properties while others are part of mixed developments. Some hotels have been the sole 'non-performing' investment by a developer while others are part of a portfolio of developments which might include residential and commercial properties.

The question being asked by hoteliers this week is 'What will NAMA do about these loans ?', and the answer is very difficult to predict.

It can be assumed that virtually all of the loans are 'non-performing'- the borrower is not repaying capital, interest or both, Otherwise they would not have been transferred to NAMA. Secondly it can be assumed that most of the borrowers are in negative equity-ie the value of the hotels is now less than the amount due on the loans. This explains why NAMA has applied a 'haircut' of up to 60% of the loan value.

If NAMA is to meet its objectives, it must seek to recover as much of the outstanding debt as is possibble, over an extended period that could stretch over several decades. Its strategy will be based on a detailed analysis of business plans submitted by the borrowers. If these plans include a credible strategy for repaying the loans in the long term, then NAMA is likely to work with the developers to achieve this objective. This may include advancing funds to complete unfinished developments or to operate loss-making businesses in the short term. If, on the other hand, NAMA is not convinced about the viability of a business plan, it is likely to take steps to recover whatever money it can by siezing the secured property and selling it at the current market value. It is likely however to tread warily in this regard as it will not want to depresss market values further through 'fire sales'.

In relation to hotels which have come onto its books, NAMA will see businesses which are probably loss-making but which are also turning over cash. It will look at the business plans submitted by the owners and will make a call on their chances of success. Where a hotel is part of a portfolio of developments, NAMA will have to balance the hotel business against offices or apartments which may be built but empty (and therefore creating no cash flow). It is worth remembering also that in order to break even NAMA will only have to achieve around 45% of the original loan value.

In its own business plan NAMA has said that it will look at the location of hotels which come onto its books and where it decides that competition in an area is too great for all of the hotels to survive, it may sell or close some properties. It is not clear however if it will also take into consideration the influence of competition from NAMA properties on other hotels in the same area or if its only concern will be the viability of the properties on its own books.

NAMA also has no obligation to consider the impact of its decisions on employment, although there may be some political pressure aimed at keeping hotels open because of the jobs which they offer in local areas. On the other hand, the Irish Hotels Federation is likely to continue its campaign to have what it terms 'zombie hotels' closed down.

It will be some time before the many Developer Business Plans can be completed and assessed and it is likely to be well intio 2011 before NAMA takes final decisions on which hotels it will continue to support and which it will sieze and close. Meanwhile these currently insolvent hotels will remain open.