The Von Essen Hotels Ltd was a holding Company that had a chain of 28 luxury cottages and palatial homes across the UK and Europe; one of which was Washbourne Court. In April 2011, after unsuccessful money saving exercises, the company collapsed into administration. Founded in the 1990s by Andrew Davis, the Von Essen Hotels enjoyed remarkable success over the years. The signature of the hotel chain was country manors and luxury cottages that provided guests with a unique, 'Lamborghini style' experience. Some of the hotels held by the company went very far back in history. Amberley Castle in Sussex, for example, goes back to the 1140s while the Thornbury dates to the 940s. The history behind some of these hotels is one reason they attracted a lot of attention.
The fall of the Von Essen Group
At the time of its collapse, the Von Essen Hotels owed an estimated £295 million to Barclays and Lloyds. These two banking institutions got payments of about £100 million between them. Other creditors had to settle for much lower payments. Perhaps a re-financing could have averted, or even delayed, this but it's all water under the bridge now. All of the hotels belonging to the Von Essen Group had to be put up for sale by administrators, Ernst and Young. Initially, the administrators had hoped to fetch approximately £203 million for the 28 properties, but the final tally from the auction was £150 million. Some of the hotels in the chain were bought back by their original owners while others ended up with new investors. It is essential to evaluate the possible reasons the Von Essen Hotels Ltd took a turn for the worst.
One of the most debated causes for the collapse is the choice of markets of the Von Essen Group. The hotel chain concentrated on providing services to the up-market class. The luxury market is not a bad choice to invest in, but Von Essen dedicated all 28 properties to that. It is true that some wealthy individuals take extravagant holidays that call for luxurious accommodations. Such a market is enticing, and an investor that can afford it will be tempted. However, it’s vital to point out that this same class of individuals own country houses and holiday getaway cottages. Von Essen perhaps went wrong by pooling all its resources into the luxury class market.
There is also the factor of markets changing with time. Over time, the class of people that take holidays take new shapes. Nowadays middle-class families save money to take holidays abroad. Such occupants look for accommodation that is affordable. Another class of hotel occupants is people that are travelling for business transactions. Individuals like these don’t want to spend large amounts of money on a room that they don’t occupy that much. Von Essen didn’t have hotels that could cater to these markets. The company did not factor in the changing dynamics of market types and conditions. 28 properties is perhaps a tad too many on one portfolio that caters to a particular market.
Ambitious Expansion Projects
Rapid expansion is another possible cause for the fall of the Von Essen Empire. Andrew Davis is a notable investor, but some people feel that he was trying to do too much too fast. Investments must be timed properly. A company must evaluate its time and analyse trends before putting all the money into expansion. The hotel industry is a tricky one to master. Trends keep changing, and timing is everything. When investors see development opportunities, they jump in at the same time, leading to an influx of hotel inventory. Suddenly, occupants have more than enough options, and the services of particular hotels cease to be unique. The Von Essen Group could have checked it's ambitions and understood the market thoroughly before investing in more high-priced properties.
High Maintenance Needs
Von Essen’s group of hotels constituted some of the finest castles, country manors, and stately homes in the UK. These properties did not only cost a pretty penny; they needed first-class maintenance. With some of the hotels being more than 600 years old, upkeep must have been an expensive affair. Maintaining luxurious accommodation requires a lot of capital. Besides the operating needs, such properties need improvement reserves in case there is a need to upgrade. Over time, the needs of hotel occupants change on a wide spectrum. For example, some hotels may have needed to get internet connectivity as communication requirements evolved. Von Essen needed to keep the hotels competitive in a market that shifts in waves.
The leveraging of Von Essen Hotels is one of the issues that continue to raise heated debates to this day. Between Barclays and Lloyds, Von Essen borrowed £250 million. There is something such as borrowing too much, and it is easy to fall into that temptation. Various reasons drive investors to borrow too much money. In the case of Von Essen, does some of the blame fall on the lenders? The hotel chain was receiving excellent publicity at the time and was the talk of the hotel industry. Barclays and Lloyds were eager lenders that should have taken the time to scrutinise Von Essen at length. Lack of sufficient equity may be another reason that Von Essen Group took such a big loan. Considering it's expansion plans and running costs, it must have appeared like the best way to proceed. The problem with big loans is that they come with high interest rates. These rates translate to higher risks of losing a property. The Von Essen Group went into administration because it could no longer keep up with interest payments.
Market cycles can also be viewed as responsible for the Von Essen Group collapse. The hotel industry, like any other, is influenced by various economic conditions. It goes up and down, and hoteliers have to be ready for the downfall when it happens. In the late ‘90s and early 2000s, the property market boomed for about a decade, and prices were at a peak in the summer of 2007, meaning a higher valuation for hotels. However, at the end of 2008 and early 2009, the market performed poorly. It is not a rare occurrence for hotels struggling in bad conditions to recoup their losses. However, it appears that the Von Essen hotels may have taken a hit that they couldn’t recover from.