GuestInvest goes into administration
GuestInvest – the firm that encouraged people to invest in hotel rooms either directly or through their pensions – has gone into administration leaving investors concerned that they may not get their money back.
Investing in hotel rooms is a relatively new concept, effectively invented by Johnny Sandelson when he founded GuestInvest in 2003. It is also known as "unitised ownership" and gave investors the chance to buy a hotel room on a 999-year lease in return for around 50% of the income it generated.
Both individual investors and corporate firms were able to invest in GuestInvest, and it was also offered in self-invested personal pension (SIPPs) by AEGON Scottish Equitable and AXA.
As GuestInvest was not regulated by the Financial Services Authority (FSA) it is not covered by the Financial Services Compensation Scheme (FSCS). Now that the firm has gone into administration, Deloitte will look to sell its assets to settle creditors' debt.
Nick Edwards, joint administrator on behalf of Deliotte, said in a statement: “We have today been appointed administrators and will be assessing the position of the [GuestInvest] group in order to determine the best outcome for its creditors.”
The collapse of GuestInvest has prompted concerns about the future of hotel buy-to-let and whether investors in other companies are at risk.
However, Stuart Law, chief executive of Assetz, which offers hotel room investment, says: “Existing hotel rooms that investors have bought into continue to trade successfully, and the investment potential for this sector remains unchanged. However, it is the future pipeline of hotel rooms for investment from this successful company that may now be in jeopardy, as the credit crunch takes another victim.”
GuestInvest also held The Blakes hotel in South Kensington within its portfolio, but as it had been unable to sell any of its rooms (which had a starting price of £1 million) it will continue to operate as a traditional hotel.
Edwards says: “[The Blakes Hotel] is a very prestigious trading asset and is not subject to any form of insolvency proceeding. The Blakes continues to trade as usual, offering the same high standard of accommodation that its loyal customer base expects under the strong direction of its existing management team.”
GuestInvest was established in 2003 by Johnny Sandelson, an entrepreneurial property developer. By the time it went into administration in October 2008, GuestInvest held six hotels in its portfolio, include Blakes, Nest and The Jones, both near Hyde Park, The Chiswell Street Hotel in the City of London.
At Blakes, room prices started from £1 million where at The Jones prices started from a more modest £317,000.
During its five-year reign, GuestInvest advertised heavily with large ads on London buses and on the Underground with the slogan "Earn money while others sleep".
Back in May, it reported investors they could receive 8% returns through hotel room investment, with double rooms having risen in value from £235,000 in 2004 to £315,000. However, hotel rooms must have an occupancy rate of 87% in order to generate the estimated returns of 8%.
It offered a minimum return of 6% for the first year, with service charges at a maximum of £700 a year for seven years.
Investors who bought into the scheme also had the opportunity to stay in their hotel room 52 nights a year (not including SIPP investors).
Like a self-select ISA but for pensions, self-invested personal pension is a registered pension plan that gives you a flexible and tax-efficient method of preparing for your retirement. It gives you all sorts of options on how you put money in, how you invest it and how it’s paid out and offers a greater number of investment opportunities than if the fund was managed by a pension company. SIPPs are very flexible and allow investments such as quoted and unquoted shares, investment funds, cash deposits, commercial property and intangible property (i.e. copyrights, royalties, patents or carbon offsets). Not permitted are loans to members or people or companies connected to the SIPP holder, tangible moveable property (with the exception of tradable gold) and residential property.
Generally speaking, insolvency is to businesses what bankruptcy is to individuals. A company is insolvent if the value of its assets is less than the amount of its liabilities, or it is unable to pay its liabilities (loan payments) as they fall due. It’s an offence for an insolvent company to keep trading, so the main options available to an insolvent company are: voluntary liquidation, compulsory liquidation, administration or a company voluntary arrangement.
The Financial Services Compensation Scheme is the compensation fund of last resort for customers of authorised financial services firms. If a firm becomes insolvent or ceases trading, the FSCS may be able to pay compensation to its customers. Limits apply to how much compensation the FSCS is able to pay, and those limits vary between different types of financial products. However, to qualify for compensation, the firm you were dealing with must be authorised by the Financial Services Authority (FSA).
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.