The Great British Property Scam (pt 6 cont...)
Updated: Aug 31
GuestInvest owned Blakes Hotel in London's Mayfair, patronised by celebrities such as Robert de Niro, Gwyneth Paltrow, and Diana Ross, and was developing a string of other hotels, including one on the site of the former Whitbread Brewery in the City of London. Hundreds of investors paid upwards of £250,000 for a GuestInvest hotel room. In 2007 they bought Blakes from the former actress Anouska Hempel for about £34m. The rooms at Blakes were on sale for £1m each.
In September 2006, GuestInvest's founder, Johnny Sandelson, entered into a £140m joint venture with HBOS to finance new hotel acquisitions, and brought in financier Sir Mark Weinberg, Life President of St James`s Place Wealth Management and husband of Anouska Hempel, as a non-executive director. Arguably, both should have recognised that the GuestInvest model was going to fail.
Many investors blamed GuestInvest for overspending on acquisitions and development projects. At the time of the collapse one hotel industry investment expert said: "They probably paid far too much for the assets they bought, and they spent an awful lot of money (renovating them), going way over budget.”
In an interview with The Observer, Sandelson said: "Everybody seems to love the concept of owning a hotel room. It makes good financial sense - investors get good returns and a bit of usage as well as capital growth. So, it's a very strong proposition and people seem to warm to it."
With those who parted with up to £400,000 for a GuestInvest buy-to-let hotel room suffering sleepless nights any suggested warmth has more than diminished.
According to industry specialist CBRE in Aug 2020 hotels have historically averaged a Gross Operating Profit margin of 11.6 percent. How does that equate to the GuestInvest financials?
Available room nights: 365
Occupancy Levels: 85%
Average Room Rate
Blakes Hotel in 2021: £270
Total Room Revenue for year: £83,767
Hotel Room Profit: x11.6% = £9717
Investor Purchase Price: £250,000 x 7% = £17,500 (promised return)
You don`t need to be the President of a distinguished wealth management firm to work out that the figures don`t add up. It is equally concerning that whilst we have not been able to examine the scheme documents for GuestInvest it clearly had all the hallmarks of an unregulated collective investment scheme. Investors were sold “property” which was then “managed” for them by the developer or hotel management company. We will examine later the legal make-up of a Collective Investment Scheme.
Jointly, GuestInvest and Countrywide Land Holdings had revealed that fractionalised property sales could generate huge amounts of money. It was now time for the scams to move into the provinces where the financial dynamics were very different.