When you get fed up with houses, there are always hotels to aspire to. And not just in Monopoly. Enter property obsessive Johnny Sandelson, a person who spends his downtime musing about how long it took for Notting Hill to become gentrified (20 years, apparently), and a developer for whom planning permission battles are great fun. (Because in the time taken, the plot value will have gone up.) He’s only 38, but has lived the whole gamut of property high-jinks: developing, refurbishing, selling and renting out. One day, however, he stopped. As he puts it: “Once you have taxi drivers telling you about their buy-to-let portfolio, you know it’s time to get out.” Two years ago, therefore, he traded in his little green houses for a little red hotel.
His big idea was GuestInvest. He bought a medium-sized hotel in Notting Hill and flogged its 20 bedrooms to investors who didn’t want the hassle of actually owning property. The hotel, Guesthoust West, continues to run as a hotel, only every time a guest stays in a room, half the rate they pay goes to the person who owns it. Investors get a yield of about 6.5% and can stay there free 52 nights a year. The scheme’s slogan is Earn Money While Others Sleep.
Sandelson says it was a three-part brainwave. “First, it tied in with the English psyche for owning property. Second, it chimed with anybody who wanted a pied-à-terre in the capital. Third, it appealed to anybody who feels discontented with buy-to-let.” Meaning? “Inner-city saturation. Voids. Service charges. Tenants.” Oh, Johnny, tell me about it.
In July 2004, Epsom-based chartered accountant James Dubois bought room No 15 for £235,000. He has stayed in it only once, but he gets a return of 6.2%, which, as he points out, is far better than if he’d stashed the cash in a building society. But as he has no mortgage on it, his outlook is bound to be sunny. “If you need a mortgage, then don’t go bananas,” he says. “Only borrow, say, 50% of the cost, or all your income will go towards servicing the mortgage. Hotel rooms are vulnerable to a sudden downturn. I don’t think this is really something for investors to start off with, but it would be great for somebody with a spread of investments who wants to stay in London periodically.”
But how easy is it to get a mortgage for something as quirky as a hotel room? Financial adviser George Radonich, from Baigrie Davies in the City, says: “I’m sure somebody would lend on it, but not a conventional mortgage lender, because it is not a private dwelling. However, I can’t see why you couldn’t have a loan secured on it or borrow against your property and pay cash.”
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Christian Arno bought room No 5 in Guesthouse West for £235,000 with his dad and girlfriend, borrowing the cash from his father. “I was captivated by the idea, and I think it will captivate others,” he says. “A hotel room will gain in popularity.”
What about capital gains? Sandelson suggests every room has already increased in value by 10%, but Dubois says: “I don’t think it has put on a lot. And I don’t think it would be very easy to sell, but over the years I suspect it will move in line with hotel rates and the secondary market will improve.” The attraction, for Dubois, is zero annoyance. “I have no aggravation from it, whereas I do with all my other properties. And the money clicks into my bank account every three months.”
Donald Sloan, head of the department of hospitality, leisure and tourism management at Oxford Brookes University, is familiar with hotel-room sales abroad: “For the hotelier, it’s a wonderful way of raising finance and spreading risk.” However, there is nothing as vulnerable as tourism, he warns. “Nothing showed us that more than the July 7 bombings, which affected London for a considerable time. So it could be a secure investment, but profits might vary considerably.”
I have a wander around Guesthouse West. It is near some swanky shops. It has a nice bar/cafe. The rooms are on the small side, but then pied-à-terres are never palatial. They are funkily done up with Wi-Fi, DVDs and all the rest.
Fired up by Guesthouse West, Sandelson has bought a hostel near Paddington, to be relaunched this month as Nest, a swanky 170-room hotel with Savoir beds and wet rooms. Rooms will sell for £175,000-£350,000, with a guaranteed yield for the first 12 months of 6%. Sling in capital gains and a free room in London one night a week, and this might prove a rather funky investment.
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Sandelson certainly thinks so: he is already looking at other global hubs: Paris, Milan, Mumbai, New York and Moscow. He shows me a series of graphs on his laptop revealing the stability of hotel prices in London, through to a page entitled Competitors. Oh, can I look at that? “No you can’t,” he says, turning the laptop off, though I know that Marriott, with timeshare flats in Mayfair, and Galliard Homes, with serviced flats in County Hall, are trying much the same thing.
When he switches the laptop on again, he says that in the time it has taken me to gulp a glass of water, more than 20 people have signed up for a brochure. Behind us, somebody with a suitcase walks through the lobby. “You see!” he says. “They turn up. They stay. They leave. And every time they walk in through the door, you are making money!” It’s just like Monopoly.