Over recent months Safe Or Scam has been working with a group of investors who invested in several Shepherd Cox Hotels.
They purchased rooms in the hotels and were promised guaranteed rentals of 8% pa for five years and guaranteed buy-backs after that period for either 110% or 115% of what they had invested. This business model will sound familiar to anyone who has made a hotel room or a care room investment. It has been adopted by many companies and is unsustainable in virtually every case.
Shepherd Cox is just one of the companies which offered this investment scheme. For example, Signature Living (Lawrence and Katie Kenwright) offered a virtually identical investment scheme across several of the hotels in their portfolio. Signature and Shepherd Cox have worked together in the past.
Shepherd Cox hotels paid the guaranteed rentals for a while, but eventually stopped paying. When we say they stopped paying we mean that they stopped paying the majority of their overseas investors. They continued to pay most of the UK-based investors. We believe this is likely to have been because UK-based investors would have been more aware of their legal rights.
In the early days of Shepherd Cox the hotel rooms were sold almost exclusively in the Far East. They had a relationship with two organisations operating out of the UK, Singapore, Hong Kong and Taiwan. One of those organisations is subject to a Police investigation in its home country. The other has closed down and we doubt the owner is keen on returning to the UK.
In the last two weeks Shepherd Cox has announced that it is closing the majority of its hotels due to the Covid-19 pandemic. They are not alone in this as most hotels are having to close, however the failure to pay guaranteed rentals goes back long before Covid-19. In many cases rentals have not been paid for more than a year and, despite repeated requests from investors, they have not been paid. More than 100 investors are owed rental arrears.
Yet, to all intents and purposes, the Shepherd Cox hotel group gives the outward appearance of being a successful and expanding organisation. This year already it has acquired two new hotels – The Olde Barn in Marston and The Crab Manor in Thirsk. You can read about them here.
Investors are rightly questioning whether it was their overdue rental money which was used to help acquire those hotels. Moreover, they are questioning whether they paid a fair market price for their hotel rooms when they invested and, if not, what did Shepherd Cox do with their money ? Did Shepherd Cox use their money to finance the acquisition of other hotels in which investors have no financial entitlements at all and which are owned by the directors of Shepherd Cox ?
Well, the answer to the first question is easy. They did not pay a fair market price for their rooms. No hotel or care home investment proposition we have ever come across sold the bedrooms at a fair market price. That is why there is never a valuation included in the marketing materials. Investors are typically paying between 200% – 600% more than the rooms are actually worth. The answer to the second question is more difficult to answer because the Shepherd Cox hotel company structure shows a network of inter-company loans and money transfers.
Ten of our overseas Shepherd Cox hotel investors have now commenced legal action to recover their investments.
On Thursday 2nd April 2020, they were represented at the High Court in London having filed claims against Shepherd Cox companies which own the following hotels:
The Travelodge Hotel;
The Best Western Grand Hotel;
The Comfort Inn Hotel;
The Sandpiper Hotel;
The George Hotel;
The Jersey Arms Hotel.
Our initial analysis suggests that these hotels were purchased for a combined total of approximately £6.5m. The bedrooms were sold to investors for a combined total of approximately £14.8m. Some of the hotels also have legal charges registered against them for loans made to Shepherd Cox hotel companies.
Investors own room leases only. They have no freehold interest and have no ownership of the rest of the hotels e.g the land on which the hotels sit (including the car parks and gardens), the kitchens, lounges, dining rooms, bar areas etc and there is concern that some of the hotels may have been used as security for loans taken out by other Shepherd Cox companies in the group. That position will become clearer over the next few weeks.
Now that the hotels have closed, investors cannot even visit their rooms because the hotel is locked. Shepherd Cox hotels do not allow 250+ room owners to have the front door keys to their closed hotels. Investor rooms are now inaccessible which raises the question of the true value of a hotel room which the owner cannot access. Who would want to buy that room from the investor and how much would they pay ?
At the court hearing on 2nd April 2020 it was agreed that the Shepherd Cox companies would be given a short period of time in which to submit their defences to the claims.
We are continuing to work with a growing band of investors in exploring all possible recovery options.