In June, we provided details of a £100m student housing scheme that went badly wrong. Based at 19 buildings around the country, the company behind the scheme had collapsed into administration.
The rent coming in from students was not enough to meet costs, let alone provide a return to more than one thousand investors, who had paid up to £75,000 each to own the rooms. Enticed by a slick marketing campaign, they had expected guaranteed returns of 8-12 per cent annually, but were left to shoulder the costs of ground rent and service charges on the buildings, despite earning no income.
One element missing from our original story were the students. In the case of one building in Stoke, there were no students at all, because it wasn’t complete. But many of the scheme’s other sites do have paying customers, despite its difficulties.
It turns out this debacle isn’t turning out well for them either. The management companies for the buildings this week walked out after the administrator stopped paying them the service charges. This has left students without internet earlier this week.
From a letter sent from administrator, Quantuma, to students on Monday:
Recently, we have received legal advice that the property scheme (and specifically the way it operated) as a whole is likely to be an Unauthorised Collective Investment Scheme. This means that it should have received the sanction and oversight of the Financial Conduct Authority, which it did not. Since becoming aware of this the Joint Administrators are legally bound not to pay over monthly service charge monies to the management companies until the matter is resolved.
The Joint Administrators have set this out in detail to the directors of the management companies and they have reacted by instructing ASM employees to leave the sites and turn off the internet connection for all students.
The administrator added that it believed these actions would constitute a danger to student safety.
It is noteworthy that the administrators believe the FCA should have been involved, because alternative property schemes of this kind have drawn in retail investors across the country – linked, perhaps, to low returns in bond markets and new pension freedoms.
Nicholas Spence, 47, and Derek Kewley, 46, the two people behind the scheme, set up different development companies for each of the sites, and sold rooms on to investors on 250-year leases. They then set up an intermediary company which acted as a tenant to those investors, and in turn brought in rents from students. It was this company – A1 Alpha Properties (Leicester) Ltd that collapsed into administration.
It is understood that the people behind the scheme reject the claim it was a collective investment scheme, that would have required authorisation.
A spokesperson for the FCA said: “We are unable to comment specifically on A1 Alpha Properties (Leicester) Ltd other than to say that it was not authorised by the FCA.”
So, who is behind the management companies? Alpha Student Management, which oversees the management at the sites, is also owned by the same Nicholas Spence and Derek Kewley, according to its latest Companies House filings. So continued service payments on the buildings, from the administrator (who was paying them out of rental income on behalf of investors), would potentially go to the people who set up a scheme which is now in administration.
How has Alpha Student Management responded to the dispute? This week, it emailed investors the following:
As you will no doubt be aware, Quantuma have advised you not to pay maintenance charge and ground rent that has fallen past due under the terms of your lease. This has unfortunately exposed you to additional costs of collection and legal recovery action.
Meanwhile, the internet has now been turned back on. But from what we gather, nobody warned the students that they were about to move into buildings that formed part of an investment catastrophe.
How a £100m student accommodation scheme went wrong – FT Alphaville
Collapse of UK student property scheme hits investors – Financial Times