‘No one wants to admit they were foolish’
Experts warn about ‘guaranteed returns’ after hotel investors have seen their income dry up, says Sam Meadows
Investors who spent up to hundreds of thousands of pounds on “buy-to-let” hotel rooms promising “guaranteed returns” have seen their income dry up and a promised “buy-back” option disappear. Some investors claim that, despite owning the rooms and in some cases having signed rental income agreements, the rooms are still being used and the profits not passed on.
Around five years ago buyers bought rooms at Hever Hotel, in the grounds of Anne Boleyn’s childhood home in Kent, and Needham House Hotel in Hertfordshire. They were sold as cast-iron investments with “guaranteed” rental returns of 10pc a year for a decade and an automatic buy-back option after five years.
But such arrangements are notoriously risky and frequently fail. Petronella West, of advice firm Investment Quorum, told Telegraph Money that any boast of a “guaranteed” return that was well above the sector’s average performance should be seen as a “significant red flag”.
Investors in this scheme were offered a choice between returns of 10pc a year or half the income from the room. But they soon found the payments dried up.
The advertised buy-back option had been due to come into effect this year, but by this time the firms involved had gone into liquidation, leaving investors with no way out. The estimated total purchase value of the rooms was close to £30m.
Following the liquidation the hotels were taken over by new management companies, which offered different rental agreements that removed the income guarantee. Some investors were advised by their lawyers not to sign. At least one investor who did sign claimed he was yet to receive a payment, while others said the returns had been negligible.
Additionally, many investors took out “mortgages” for half of the value of the rooms from a company called Mercantile Investment Holdings, registered in the Caribbean island of Nevis.
Investors were told the mortgage repayments would be deducted from the rental income. But after rental payments stopped being made, the mortgages fell into arrears and many of the rooms were repossessed.
Letters from Mercantile to one investor said the company would “take steps to sell the room in order to recover the balance owed”.
Although Mercantile is registered offshore, company minutes seen by Telegraph Money show the involvement of Paul Gould (when the company had a different name) and Ronald Popely, a former racehorse owner who had previously served an eight-year ban from operating a company after an earlier investment opportunity at the Hever Hotel failed.
Mr Gould was involved in the running of the original management company, White Linen Hotel & Resorts, as well as the companies that sold the investment opportunity: Oak Property Partners and Oak Forest Partnership. Mercantile, the mortgage provider, is listed as the majority shareholder of Oak Forest Partnership. Mr Gould denied being involved with Mercantile and said he was involved in the Oak companies only as a secretary. He said he could not comment further because of the possibility of litigation.
Mercantile said: “All actions taken by Mercantile Investment Holdings were carried out in conjunction with full legal advice. Regretfully we can make no further comment.”
The affair has had a lasting effect on investors. Some told Telegraph Money they had lost everything; at least one lost an inheritance, while another was made homeless as a result of her financial difficulties.
One investor, who preferred not to be named, told this newspaper: “This was supposed to be our pension, but the whole scheme feels like it was made up.”
Another said: “I was in a situation where my company was doing pretty well and I was looking for something to invest in. This seemed to tick all the boxes. No one wants to admit they have been foolish but maybe I was.”
The investors claim the rooms they own are being used without their permission and without them receiving a share of the profits.
Hever Resort Hotel, one of the new management companies, said it began to operate Hever Hotel on May 1 2018 and “it is too early to calculate any payments due to room owners”. Countrywide Hotels, the new manager of Needham, has been approached for comment.
The buy-to-let room scheme is not connected to Hever Castle itself.
Rooms at both hotels are still being advertised for sale, marketed as a “share in a holiday home”.
Investment Quorum’s Ms West warned investors to be wary of bold promises. “Nobody does guaranteed returns and nobody gives returns of 10pc. That alone would send me running for the hills,” she said.
“Anything offering a guaranteed, cash-equivalent return cannot be real. The only thing that can really offer a guaranteed return is [government] bonds. Any investment using the word guaranteed is likely to be a scam.”
Hever Hotel, which is in the grounds of Hever Castle in Kent, left, has a new management company that is not offering the same rental agreements that room investors originally signed