Investors Fleeced in Financial Wild West
Lack of protection for individuals investing in new hotels and holiday resorts is a serious problem, emerging from a financial Wild West where it is unwise to rely on any law at all. Often investors are at the bottom of the pecking order and receive little, if anything, after everyone above them has taken a cut.
West Wales News Review has reported several times on the plight of investors in The Corran Resort and Spa, Laugharne, Carmarthenshire (here, here, here and here for example), who lost some £17 million net, and also on hotel investments in Wales sold by Northern Powerhouse Developments (here), including unbuilt properties in the Afan Valley where the site did not even have planning permission (here).
In many hotel investment schemes, people can purchase what they think is a fraction of a room or apartment.
Some key persons in The Corran saga appear in other complex fractional deals sold to private investors. One is David Bates, chartered accountant of Heswall, Wirral, Merseyside. Hundreds of fractional investment property companies were registered to Mr Bates’ address until this year, when there was a sudden, mass switch to Milestone House, Nursery Court, Kibworth Harcourt, Leicestershire, an address of tax consultant David Warren Hannah, founder of Cornerstone Tax Ltd.
David Bates is, according to Companies House, a director of only two companies currently instead of around 1,570 previously. That large number of mainly fractional property companies included Dunas Beach Apartment 107 Ltd.
Dunas Beach is a resort on Sal island in Cape Verde, an independent group of islands in the Atlantic just over 300 miles west of Senegal. Andrew Walton, who has contacted West Wales News Review, had thought his July 2011 investment in Dunas Beach Apartment 107 Ltd had purchased one-eighth of an apartment. The purchase was off plan as at that time the resort had not been built.
But Dunas Beach Apartment 107 Ltd seems to own nothing at all. The last published accounts, dated April 30th 2017, show it has no value and no assets. Neither does it have shares, therefore investors cannot own shares in it and cannot receive dividends. The company is limited by guarantee, a legal form generally adopted by non-for-profit organisations. If the company fails, its members are required to contribute only a pre-determined amount.
Companies House lists the controller of Dunas Beach Apartment 107 Ltd as Robert Jarrett. He is the founder of The Resort Group plc, a British man with a home in Gibraltar, where The Resort Group is registered. He founded the company in 2007 and on Sal bought land for two beach resorts, Tortuga and Dunas. The Dunas Beach resort opened in 2014, managed by Melia Hotels International.
Mr Walton says he was told verbally he would receive between 5% and 7% annually on his investment of £21,179.11, so between £1,059 and £1,482. Over seven years that would be between £7,413 and £10,374. A return of 5% to 7% would be excellent in today’s climate, but not so high as to flag up, automatically, a ‘too good to be true’ warning.
The reality is somewhat different, though – a loss of just on £1,045.
His investment is a SIPP, a self-invested personal pension. He was alerted to the possibilities of a SIPP investment in commercial property by Consumer Money Matters Ltd. This firm introduced him to Real SIPP LLC, owned by CIB (Life & Pensions) Ltd. Real SIPP sold him one eighth of what he thought was a hotel room, but which turned out to be membership of a company without any assets.
Consumer Money Matters went into administration in October 2015. Real SIPP was dissolved in September 2017 and CIB (Life and Pensions) in February 2018. Rowanmoor, part of the Embark Group, took over administration of Real SIPP’s portfolio, including Andrew Walton’s pension.
The gross ‘room revenue’ from Mr Walton’s ‘apartment’ has Melia’s operational costs deducted. Rowanmoor charges fees, and The Resort Group takes a cut. Dunas Beach Apartment 107 Ltd also charges a fee (although it does not appear to have any turnover at all).
The investor is right at the end of the line and in Mr Walton’s case, he is paying out instead of receiving any income.
He is not alone. The magazine FT Adviser reported on June 28th 2018 (‘Offshore investor returns eaten up by Sipp fees’) on the plight of a number of investors in property built for The Resort Group. They are making losses and unable to get their money back or sell their investment. Even if a marketplace in membership of fractional companies were established, a queue of buyers is unlikely.
Fractional property investments are not regulated, so it is definitely Buyer Beware. Investors may qualify for a portion of net income from ‘their fraction’ of a room, apartment or villa, but do not own any physical asset at all. They are probably presented with figures, but it is pretty much impossible for them to know if those figures are genuine.
In Mr Walton’s case, the fees charged by Rowanmoor are greater than the net revenue apparently due to him, so his pension investment has lost money and he does not know if he can ever recover his capital.
Comments on Trip Adviser indicate that the Dunas Beach resort is far from crowded. Reassuring noises from The Resort Group suggest they expect room occupancy rates and therefore income to increase, but they may be over-optimistic about the attractions of holidaying on a small island known for salt pans and moon-like scenery. Holidaymakers go for the beaches and sun – there’s not a great range of activities on Sal, which is less than 19 miles long and is under eight miles at its widest point.
Investors like Mr Walton, who were persuaded to put pension money into unregulated products divorced from actual assets, have a case to claim mis-selling. He contacted the Pensions Ombudsman in December 2016, and some months later was told an adjudicator would investigate. That adjudicator went on sick leave and by February 2018 had left, so Mr Walton had to start all over again, with no result yet.
As at The Corran, investors in Dunas Beach and hundreds of other fractional investments are confronted by opaque, obscure arrangements which appear deliberately designed to prevent oversight of investment performance.
Investing in fractions of other people’s holidays seems a very good way to ensure you won’t be able to afford a whole holiday yourself!
Investors who have lost money in pension transfers into unregulated ‘products’ are raising funds to engage a firm of private investigators.