Lancaster Hotel

The recent reviews on trip advisor are pretty dire and don't reflect any investment that may or may not have taken place in the public areas, as any positives in the public areas are massively outweighed by the grotty bedrooms.

My recent research into the South Wales property loans which are months late (but FS state they have proof of repayment funds)  suggests there is a common director behind the management company at this Lancaster hotel and the one at that South Wales hotel which has gone into liquidation.

My conclusion is the borrower behind these loans is an asset stripper when looking at the two cases in parallel. This Lancaster Hotel has sold off individual bedrooms to private investors, making the remaining rump which is our security not that attractive (but for clarity we knew that from the outset of these loans)

The South Wales one is fascinating - the freehold property was bought (presumably at a discount from the previous administrators). The freehold was then sold off (presumably to a connected entity) and a long lease (125 years) put in place (over which FS has the charge although I'm struggling to identify the correct title on the land Registry site) with the hotel management company (that has now gone bust) at a fairly high ground rent (with a nasty legal clause that might come back to bite FS if they need to foreclose on the loan). The freehold contained some separate cottages, these were split off onto separate leasehold titles that were sold on to private (presumably unconnected) individuals.  (a careful read of the valuation report explains most of this). Roll forward to spring 2016.  In the court case that preceded the collapse of the hotel management company, it was stated that the reason for the unpaid electricity bill (> £10k) was that there was only one electricity meter for the hotel + the garden blocks and the cottages (that had been sold off as separate leaseholds).  Local media reports the judge as making comment about the strangeness of this.  So not only asset stripping, but not investing the money to split the services.  Which leaves a real mess with the hotel leasehold (our security) owning an electricity meter which feeds other leasehold cottages (and it will not be cheap to rectify this which could well undermine the valuation of our security)

If I'm right that there is a connection between these two sets of loans (2 loans to each), then I would have some doubts as to what is actually happening in Lancaster. The sales blurb for the Lancaster rooms states that the Signature Hotel Group WILL be taking over the management of the hotel. I'm far from convinced that this is the case, and I have failed to identify what the Signature Hotel Group is (as neither a single West Midlands hotel nor the Liverpool based group with a similar name would seem to match the profile).

Disclosure: I have no stake in either of these loans, but am using these and a couple of other distressed FS loans which again I have no stake in to attempt to assess the extent that FS due diligence prior to loan drawdown should have risk assessed factors that would have been known at that time, and what if anything can be deduced about "platform risk" as a consequence.