Hotel scraps rental guarantee payments

Wellington's $100 million Holiday Inn has abandoned guaranteed rental payments.

From this weekend, the hotel will pay investors only the money generated by the 238 rooms.

Hayden Porter, of Galway Tourism Investment Group and Galway Hotel Management (Wellington), told investors their returns would vary depending on room occupancy.

The new scheme starts on Sunday, but Porter warned that trading had been difficult because of the global financial crisis.

In the past few months, investors have complained about not getting guaranteed rent and some people said this meant they could not meet mortgage repayments. The managers initially put problems down to software issues.

A group of about 30 investors have contacted a Wellington lawyer about not getting their money and are deciding what they should do.

The hotel was developed by Nigel McKenna's Melview business, and Porter wrote to hotel investors that Melview had been paying them more than it had actually earned from the hotel.

"Since settlement, Melview has been topping up the shortfalls in actual revenue to make up to the fixed return amount paid to you," Porter wrote.

"From June 28, your unit will receive an actual return based on actual revenue generated and actual costs incurred to operate your room."

He cited an example based on an average Holiday Inn room which generated $3600 monthly revenue. Operating costs of $1950 were deducted and after other expenses, the investor would get $1135 plus GST.

Rates and body corporate expenses would be deducted on a monthly instead of quarterly basis.

Investors will get net returns based on the lease and income from their hotel rooms, Porter wrote. He warned how the winter months were generally quiet, but summer and Rugby World Cup 2011 could see more business.

"Unlike the guarantee returns, the amount you will now receive will vary month to month depending on the hotel's occupancy," Porter said.

Ernst & Young has been appointed "to review the hotel operating accounts", he said, but its fees would be paid by Galway, not the investors. Investors who were owed rent would get this by mid-next year.

"The balance of fixed return amount will be gradually paid to you once trading improves but in any event by no later than June 28 2010."

Anton Nadilo, of Wellington financial business My Money Mentor, said two of his clients had bought rooms in the hotel and were owed $10,000. They were angry that three- to five-year rent guarantees were abandoned.

"The fact that they've pulled the plug is an absolute joke. These investors are getting absolutely steam-rolled," Nadilo said yesterday.

In a separate dispute, Fletcher Building has won the right to claim $1.7 million from Melview Featherston Street, which developed the hotel. The sum is the final bill for the hotel's construction, but McKenna has disputed the amount, saying the money was not owed and would not be paid until problems with the building were fixed.

In a third separate issue, the Auckland office of KordaMentha was appointed receiver for two of McKenna's companies developing his $1 billion Queenstown project. On June 9, KordaMentha said it was still evaluating the project's first stage, and construction would continue in the meantime. About 600 people were working on the site.

"The process involves analysing costs to complete and evaluating the current pre-sales and other contractual arrangements," KordaMentha said.

A Melview spokesman said all investors received a full payment at the end of April, and after that discussions of a revised payment plan started.

"Until the end of last year all investors were fully paid up for the first two years. Melview engaged professional advisers to review the situation and come up with a realistic payment plan for investors.

"E&Y was recommended but because they have been Melview's accountants for 10 years, it has been decided that an independent third party firm should be engaged to audit the hotel's performance and provide investors with independent advice.

"The hotel starts going on to net returns at the end of the year."