BUSINESS OPINION:Taking hotels off banks' books promptly should help solve the crisis in the hotel market, writes JOHN McMANUS

AND SO it begins. With the imprimatur of the European Commission, the rough beast that is the National Asset Management Agency (Nama) now slouches towards Ballsbridge to be born, several months late.

No sooner does it do so than the lobbying starts. First out is the Irish Hotels Federation (IHF). You can expect to hear a lot about Nama and hotels this week as the IHF annual conference kicks off this morning in Galway.

Depending on who you listen to, Nama will end up owning the debts – and possibly the deeds – of between 100 and 200 hotels by the time the five covered institutions have transferred over €80 billion worth of land and development-related loans to it.

Attention will focus on the various trophy hotels being transferred to Nama, along with the wider portfolios of various, once mighty, property tycoons who make up its first customers. They include Derek Quinlan and Paddy McKillen’s London hotels.

The real issue – from the IHF’s perspective – is the large number of smaller hotels that have sprung up around the country over the last 10 years, most of which were built primarily to avail of generous tax breaks that could be used to shelter the super-normal profits being made by developers.

The use of hotel-based tax breaks by developers as part of their overall tax planning meant the hotels are knitted into their overall portfolios, and thus will transfer to Nama at some point.

The truth is that many of these hotels should never have been built, and some are now little more than zombies,the IHF says.

Even though they are loss-making, their owners cannot close them, because they will then lose the tax breaks and face a clawback they cannot meet.

The banks will not close them either because they don’t want to have to write off the loans. They would rather transfer them into Nama at their long-term valuation, and take a smaller hit.

An unknown number of these hotels are limping along, undermining the viability of more established hotels. The IHF reckons that 15,000 rooms need to go to take the excess capacity out of the system. And it wants Nama to do it, surgically removing the non-viable deadwood hotels.

It is an appealing idea at one level, particularly to anyone who subscribes to the idea of Nama being a lever over the economy, and not just a dustbin for banking disasters. So why not use it to cull the hotel sector, and create an industry that is fit for purpose within a wider tourism strategy?

The first problem – and it is something of a cheap shot – is that you first of all need a comprehensive tourism strategy. But that is another day’s work.

More relevantly is the whole area of Nama’s capability. Nama may be many things in time, but as it stands its knowledge of the hotel industry is all but non-existent. The delays in transferring the loans of the first 10 big borrowers have served to highlight the massive execution risk that is inherent in Nama, and arguably the single biggest threat to its success at this point.

It is not simply – as the banks seem to be implying – that Nama is some sort of self-perpetuating bureaucratic monster spinning out of control and generating fees for advisers. That said, it is little short of a national disgrace that the agency has already blown its budget for legal fees. Ireland’s legal profession seems incapable of learning the hard way – or any other way – that the country does not owe them a living.

Nama would appear to be erring on the side of caution when it comes to collecting information and doing due diligence. Given the unprecedented nature of what is involved, there is merit in this. But clearly it needs to get more efficient and presumably it will.

Its management of the transfer process to date raises very serious doubts about whether – even if it wanted to – Nama could take on extra tasks, such as proactively rationalising the hotel industry.

Nama would be well advised to steer clear of such a task because it is a political minefield. Regardless of the restrictions on directly lobbying Nama, it is hard to believe hotel owners will not use political connections to seek advantage.

It seems better to let the market weed out good from bad, rather than have Nama arbitrate.

What Nama should do is ensure that the market works a bit better. That means taking hotels off the banks’ books as quickly as possible and closing the zombies. That means getting a move on.