Suite returns: why it’s a good time to check yourself into the hotel industry
Hotel rooms are one area of property investing that are bucking the credit crunch, writes Timothy Barber
If we’re thinking positive, the slowing economy presents an opportunity to get a bit creative with investments. The alternative asset market has become more and more prominent in 2008 as investors look for areas offering stable returns in unstable times, and that includes property investors.
Which makes now a good time to get into an unusual, but increasingly popular, area of the buy-to-let market: hotel rooms.
First pioneered in the States, the practice didn’t kick off over here until 2004, when the company GuestInvest first offered rooms for purchase in its Notting Hill boutique hotel, Guesthouse West.
Since then, a number of other companies have been getting in on the action, and GuestInvest has added three more London boutique premises to its portfolio. It’s also entered into partnership with Anouska Hempel’s iconic Kensington retreat Blakes, though only regular guests have the chance to snap up a room there – for a minimum of £1m. The starting price for a GuestInvest hotel room is £317,000.
Here’s how it works. By purchasing a room, investors are entitled to stay in it for free for up to 52 nights a year. The rest of the time it’s let out as a regular hotel room, and the investor will receive 50 per cent of the its income, as well as benefiting from the property’s capital appreciation. Purchases are made on a 999-year lease, and as with any property or asset, can be re-sold at any time.
Straightforward Investment
“It’s a very straightforward way of investing in what can be a complicated marketplace,” says Johnny Sandleworth, GuestInvest’s founder and CEO. “When I set this up, people were getting frustrated with residential buy-to-let because they would underestimate the amount of time they’d have to spend managing properties. A hotel room is looked after for you, so it’s hassle free.”
And it works too: investors in Guesthouse West have seen returns of around 8 per cent and capital appreciation of around 9 per cent per annum.
Sandleworth reckons that for those visiting London periodically, a hotel room offers a much better solution than the old pied a terre option. That’s particularly good news for people visiting the City – GuestInvest’s newest hotel, The Chiswell, is due to open in the Square Mile next year, and a handful of rooms are still available to purchase.
Tasty Incentives
There are some other tasty incentives. Since a hotel room is a commercial rather than residential property, it can be included in a saver’s self-invested personal pension (SIPP) plans. SIPP providers with rooms as part of their property offerings include AXA, Jardine Lloyd Thompson and AEGON Scottish Equitable. Investments can also qualify for business asset taper relief, meaning capital gains tax can be reduced by as much as 10 per cent.
“This kind of investment requires a mixture of head and heart,” says Sandleworth. “It’s a good way of extending your portfolio from a financial perspective, but its also an emotional decision to be part of the hotel sector.”
In contrast, Galliard Homes took the macro approach in developing the old seat of London government, County Hall on Southbank. In 2003 Galliard released for sale the 398 suites and studios – each containing kitchen facilities, living areas and work spaces – making up the County Hall Park Plaza, which opened in February this year.
“A hotel room in a good position is a very good investment, because it should produce a constant return,” says Galliard’s marketing director Madeleine Flower. “Even in August, which is always quieter, occupancy at County Hall is running at 80 per cent or more throughout the week, which means the credit crunch really isn’t affecting things at the moment.”
Far from resting on its laurels, Galliard opens its next project, the Westminster Bridge Park Plaza with 950 rooms, late next year – and a small number are still available to pick up.
“The proof is there that the concept works,” says Flower, “and the investors we’re talking to who bought the rooms back in 2003 are delighted.”
Vibrant Industry
That’s a view echoed by James Chappell, managing director of STR Global, which monitors the health of the hotel industry.
“It’s a cyclical industry, so there’s a slowdown in growth at the moment, but rates and occupancy across the board are exceeding last year’s levels,” he says. “The industry is pretty vibrant, and should stay that way.”
With the 2012 Olympics set to boost the hotel business just as it hits the upward curve of the cycle in 2010/11, the outlook for hotels in London looks robust – and there aren’t many investment areas you can say that about at the moment.