Established by Mr Sandelson in 2003, GuestInvest aimed to transplant the residential buy-to-let model into the more glamorous world of central London hotels. Starting out with boutique Notting Hill hotel Guesthouse West, the company sold rooms on 99-year leases to individual investors, but handled management and reservations itself promising a "hassle free" investment.
In a model copied at its later developments, rental income from the rooms was split with investors on a 50:50 basis, and investors were guaranteed returns of 6 per cent for the first year. As an added bonus, they could stay for free in their room for up to 52 nights a year. The concept was an instant success.
In 2006, Bank of Scotland's joint ventures division purchased a major stake in the business in exchange for a £200m debt and equity package. This enabled Mr Sandelson to build up his hotel empire, buying four more central London hotels at the peak of the property boom for conversion into GuestInvest properties.
Hotel room investments in the three new schemes - The Nest, The Jones, and The Chiswell - were marketed to investors as an extensive redevelopment programme commenced. Around 60 investors purchased rooms outright on 999-year leases, and a further 190 put down deposits of 10-20 per cent. However, the refurbishments were never completed, and the three hotels have yet to entertain a single paying guest.
A fifth scheme was planned for Blakes - a Kensington hotel famed for its celebrity clientele - but the proposed £7m refurbishment never even started. GuestInvest had planned to reduce its 52 rooms to 40, which would be sold to investors for £1m apiece, but found no takers. However, this hotel trades profitably, and is likely to be sold as a going concern by the administrators.
The first hotel, Guesthouse West, is not included in the insolvency proceedings.
NEST EGG IN A SCRAMBLE
The lavish refurbishment of The Nest, a 157-room hotel in Bayswater, was originally scheduled to complete in 2007, but a series of delays means it has still not been finished. However, the development was a sell out, and investors including Mrs Bolton completed their purchases in August after being told the hotel would open its doors within a few weeks.
"There were no indications then that financial problems were looming; the construction had overrun, but we thought that was fine - it seems so naive now," she says. "We were guaranteed a 6 per cent return for the first year, regardless of whether the room was let out, but no monies were ever paid. Nobody can answer our questions about the guarantee. We haven't even been able to view the room, although before the administrators were appointed, we were offered free nights at other GuestInvest hotels to compensate for the delays."
Construction works at all three of GuestInvest's refurbishments ceased in early October as a result of the administration.
The Jones, a 174-room hotel in Bayswater, was set to open this summer but it will not be trading until after Christmas at least. Investors who purchased here were guaranteed a 6 per cent return on rooms, which started from £317,000. The Chiswell, a luxury remodelling of the former Whitbread brewery on Chiswell Street in the City of London, was set to produce a 218-room hotel scheduled to open in June 2009.
