investment in hotels is not the easy option
Last week's jailing of Robert Feld for eight years (see page 12) will have led to mixed feelings for anyone involved in the hotel industry. There will be disappointment that the former chairman of Resort Hotels should have done so much to damage the good reputation of the industry, but pleasure that he was found out and finally convicted.
Right to the end Mr Feld attempted to lie his way out of trouble by blaming others for the fraudulent way the company expanded, before collapsing with £140m of debts in 1993. It is hard for most people to imagine how someone could amass so much debt in a relatively short space of time.
Ten years earlier the business comprised just one hotel, the Norfolk Hotel on the seafront in Brighton, which was owned by the Feld family. The road to ruin really began when Robert Feld used the Business Expansion Scheme (BES) to raise money, setting up a company to buy the business interests of the Feld family.
The BES was a scheme that allowed private investors to gain substantial tax savings by investing in expanding new businesses. The cash raised by Feld provided the initial pump priming to enable the company to expand. Further expansion came when the company went public in 1988.
Hopefully, the exploits of Robert Feld will not be repeated elsewhere. Company accounts are much more carefully monitored these days and the BES is, thankfully, a thing of the past.
The failure or poor performance of many BES-funded companies highlights the folly of governments getting involved in the funding of private businesses. In too many cases gullible private investors were encouraged to invest in BES schemes because there appeared to be a stamp of approval from the Government.
As a result, they invested for the wrong reasons and frequently lost all their money. Many clever business people used the BES to either raise money for other doubtful investments, as in Mr Feld's case, or get outside funding for business ventures that weren't sound investments.
Often they were able to realise cash for themselves that would otherwise have been lost.
In most cases BES companies operated within the law, but still left a nasty taste in the mouth for unfortunate investors who felt duped by over-optimistic prospectuses.
Even in the most favourable of circumstances, investing in hotels and restaurants is risky. The failure of Resort and the poor performance of other BES businesses reinforce that message and should encourage all would-be investors to take a cautious approach to investment in the hospitality industry.
Gary Crossley
Editor
Caterer & Hotelkeeper
