GuestInvest, the London-based buy-to-let hotel bedroom business, has been put into administration.
The insolvency was blamed on Bank of Scotland pulling the plug on the financing, although there have been widespread doubts about the robustness of the GuestInvest business model.
In September 2006, BoS invested £200m in debt and equity in the business and there were ambitious plans to roll out the concept.
Individual rooms at the hotel were sold to investors offering a return of 6% or so guaranteed for a limited initial period. Investors were also able to stay for free in the hotel for up to 52 nights a year.
Scepticism about the model centres on whether such a return is sustainable through the cycle, particularly given that investors would later be liable to fund refurbishments.
The GuestInvest website says current owners have been seeing returns of 8% and the Bank of Scotland logo is used to reassure would-be purchasers. Some buyers used their Self Invested Pension Plan to acquire units.
Founder Johnny Sandelson boasted about creating a new asset class, predicting that it would be widely adopted by the hotel industry as a method of financing hotels.
As the managing agent of the hotels, GuestInvest deducted 50% of the sales proceeds at the property (after the deduction of any third party sales commissions). Owners received this income but they also had to pay for "major services" provided by the agent. This is capped at £500 for the first seven years.
Following the insolvency, unit owners have the right to remove GuestInvest as the managing agent. But finding a manager willing to take on a contract where the individual rooms are owned separately on 999-year leases will not be easy and neither will finding a buyer for the freeholds of the properties.
There are five buildings within the group, the first to open was Guesthouse West in Notting Hill and this is not part of the administration. Blakes, bought at the end of last year, had yet to sell-off its rooms and continues to trade as a conventional boutique hotel.
The three other properties are in Chiswell Street, part of the Brewery development that was previously owned by Whitbread, and two properties in Bayswater, the Jones and the Nest, which, like the Brewery project, have yet to open.
Sandelson claimed that had he been able to open the three properties then creditors would have been repaid. But people familiar with the matter said that the company was perceived as overpaying for the sites and then spent heavily renovating them.