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Peter Hancock: The lesson from Von Essen

19 May 2011 by
Peter Hancock: The lesson from Von Essen

The news that von Essen Hotels had gone into administration last month took few observers by surprise, even though predictions about when it would happen had been wildly inaccurate.

To grow a collection of expensive hotels so quickly - from nothing to 28 UK properties in just 10 years - always looked ambitious and with borrowings reaching £250m, the business must have operated in the constant shadow of the expectations of its banks and other lenders.

Despite all this, von Essen appeared to have all the trappings of a successful enterprise and ran its hotels well enough to persuade the board of Relais & Chateaux to accept no fewer than six of them as members.

What effect the company's demise will have on the luxury hotel sector is unclear. If the group is bought as a whole and continues to trade there may be very little impact. But if the properties are to be sold off individually, all at the same time, this could dampen values generally for a while, rather in the way that footballers might temporarily become cheaper were Mr Abramovich to dispense with the services of his entire team at Chelsea.

Either way, these must be anxious times for many of the staff and suppliers left in the wake of Andrew Davis's meteoric rise and fall. I have met him on several occasions and have to admit that his generosity and wit in person are very much at odds with the reputation he has acquired as a businessman. The sound of his unexpected helicopter landing in a nearby field must have been music to the ears of those hoteliers who suddenly found themselves able to contemplate a well-funded retirement. He also deserves credit (pun intended) for hanging on to some very able managers over the years.

Is there a lesson for others in all this? I do recall the late Robert Maxwell had a favourite saying: "If you owe the bank a million dollars, you have a problem. If you owe the bank a hundred million dollars, the bank has a problem." Be in no doubt, this story is all about borrowing against property values and should not be taken as a reflection of the state of the luxury hotel market overall, which is remarkably robust.

As to the hotels themselves, most were set up by passionate individuals who enjoyed relatively close relationships with their customers and they worked well as one-offs. This remains true of other great hotels that are still in private hands such as Chewton Glen and the Goring. Let us hope that at least some of the von Essen estate is snapped up by people who love hotelkeeping as much as those who opened their doors to paying visitors for the first time.

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