Administrators accuse council of forcing hotel out of business

EXCLUSIVE: The closure of the Croydon Park Hotel, with nearly 100 employees losing their jobs, could open the way for the site to be used to build more flats. By STEVEN DOWNES

The Croydon Park Hotel: targeted by its council landlords. Will it now make way for more Brick by Brick flats?

A confidential report from accountants carrying out the financial administration of the company behind the Croydon Park Hotel says that the business was forced to close because its rent was too high and its landlords refused to reduce the bills, despite repeated appeals and even in the middle of the covid-19 crisis.

The hotel’s landlords are Croydon Council.

In the conventionally dry language of accountancy, the report makes it clear that its authors believe that, with the council this year having become the Croydon Park’s sole customer – using the 211-room four-star hotel for emergency accommodation during the coronavirus lockdown – it was Town Hall officials who made a deliberate decision to force the hotel’s management company out of business, causing another 92 job losses in the town centre.

The Labour-run council paid over-the-asking-price, £29.8million, to buy the East Croydon hotel just two years ago. At that time, it was claimed that it would be a useful investment, its rents helping to help fund the borough’s frontline services. But now, Katharine Street sources suggest that there has been a hidden agenda at the council, which wants to develop the town centre site for flats, possibly to be built by the council’s loss-making house-builders, Brick by Brick.

Kasterlee UK Ltd, the company which operated the hotel on a lease from the local council, collapsed into administration in June, as first reported by Inside Croydon.

Having failed to find any takers for the remains of the lease, KPMG, who were appointed as administrators, want to complete the process of closing down the company by the end of this month and have issued a 32-page report detailing the history of Kasterlee, which provides a timeline that shows that the company’s financial difficulties worsened after the council bought the freehold of the hotel.

The administrators’ report, which has been leaked to Inside Croydon

Kasterlee was formed in 2006 when they took on a 25-year lease for the hotel.

According to the administrators’ confidential report, which has been leaked to Inside Croydon,  “The Company last recorded a profitable year in 2017. From 2018 onwards, the company has seen falling revenues, which has led to a negative EBITDA position in each of the full years 2018 (-£64k) and 2019 (-£146k), and to the point of administration in 2020 (-£417k).”

That’s a chunky sum of money, which seems likely to leave many creditors – often other local businesses – out of pocket when the administrators conclude their work.

Under a heading, “Events leading to the administration”, the administrators report that Kasterlee was faced with “unsustainable property costs, principally rent, [which] resulted in financial difficulties for the Company”.

In 2019, the company took steps to review the business, “alongside their auditors and advisors, Grant Thornton LLP”. Grant Thornton is a very large accountancy concern, but it is worth noting that among their other clients is Croydon Council.

The administrators’ report continues, “In view of the challenges the Company faced, and specifically in relation to property costs, director Andrew O’Neill wrote to the landlord, Croydon Council, on 31 July 2019. Proposals contained within this letter were not accepted by the landlord and property costs remained unchanged.

“We understand further attempts by the directors to reach an acceptable compromise were unsuccessful.”

According to documents which were presented to the council cabinet in 2018 when seeking approval for the purchase of the hotel’s freehold, the rent in 2018 was £1,725,000 per year, with the prospect of a further hike under a rent review due in 2021.

Simon Hall: his investment strategy appears to be in tatters following the closure of the hotel

The administrators’ report continues: “On 23 March 2020, the UK was put into lockdown as a result of Covid-19, closing off almost all revenue streams for the Company. On the advice of Grant Thornton, the Directors were introduced to KPMG’s restructuring practice on 19 May 2020.

“In a board meeting on 12 June 2020, having regard to the financial position of the Company, the Directors resolved it would be in the best interests of the Company and its creditors to place the Company into administration and appoint James Bennett and Steve Absolom as Joint Administrators of the Company.”

Elsewhere in the report, the administrators confirm that, “The landlord had also been the sole customer of the hotel (as Croydon Council was using the property to shelter those shielding from covid)…

“… The landlord was unable to promptly confirm their position or provide certainty on improved lease terms. Without this required support, the Administrators couldn’t continue to trade while exploring options to realise value from the lease. As such the lease was surrendered.”

It all means that, since June at least, the council has received not a penny in rent from one of its principal “commercial” investments, largely as a result of its own actions, or inaction.

Back in 2018, when he authorised the borrowing of another £30million by his council, Simon Hall, the council cabinet member for finance, claimed: “This purchase will enable us to bring in additional income to the council, securing a new revenue stream to fund core services. At a time where government grant funding for local authorities continues to fall, we have to look at new and innovative ways to ensure we can provide services to residents.

“This purchase is one way to do it.”

Evidently, it was not.

This commercial investment policy, which has also been adopted by other local authorities, has been roundly criticised for being high-risk and because of the council’s lack of expertise in the commercial property sector. Croydon Council has accumulated debts of £1.5billion, in part to fund its “investments” such as the Croydon Park Hotel, the purchase of the Colonnades leisure complex (which has also been closed throughout the lockdown period), and other commercial properties in the borough.

Today, a senior Town Hall figure, after reviewing the KPMG administrators’ report on Kasterlee, told Inside Croydon, “The report is really shocking in terms of the council’s involvement.

“The council appears to have wanted the business to fold for more than a year. They have certainly known the business was struggling since before they took on the lease.

Ripe for redevelopment: how the Croydon Park Hotel’s site appeared in the marketing document circulated at the council two years ago

“Of course, any good landlord would have waived its rent for a period during the pandemic.”

But the source pointed to a marketing brochure that was circulated among councillors at the time of the purchase in 2018, and which is still lodged on the council’s website (click here to view it on the council website, or click here to download the document as a pdf).

Under the heading, “The Croydon Park Hotel – Future Opportunities”, the sales spiel states, “Opportunity (subject to the appropriate consents) to significantly increase the massing on site and increasing the footprint of the hotel.

“This could be achieved by adding additional floors and/or building on the open car park at the rear. Potential change of use to residential to fully utilise the 1.54-acre site (subject to planning). Surrounding schemes have secured consent of upwards to 21 storeys in height.”

Of course, the site’s owners should have no problem getting planning consent, since they, Croydon Council, are also the local planning authority.

“This is the prize to the council,” the source said.

“Give the site to Brick by Brick. Flip it to residential, either using permitted development or rebuilding it. But how long it might take Brick by Brick to work up any plans, given their track record, is anyone’s guess.

“It will certainly not be any consolation to the 92 people who have been forced out of work because of the stubborn position of the hotel’s landlords – their own council.”


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About insidecroydon

News, views and analysis about the people of Croydon, their lives and political times in the diverse and most-populated borough in London. Based in Croydon and edited by Steven Downes. To contact us, please email inside.croydon@btinternet.com
This entry was posted in Brick by Brick, Business, Croydon Council, Croydon Park Hotel, Planning, Simon Hall and tagged , , , , , , , . Bookmark the permalink.

6 Responses to Administrators accuse council of forcing hotel out of business

  1. How many jobs have Croydon Labour destroyed since 2014? There’s the Fairfield Halls botch job and failure to max out the furlough scheme, cut backs at the Council (again) and now this. I was going to look up the Council’s planning policy documents about change of use from hotel to residential, and then I remembered what clownish unpopular nasty toerag was in charge of the Planning Committee.

    Say what you like about Mussolini, Hitler and Stalin, but unlike this dicktator (sic), the buildings built under their regimes had a certain style. With the borough being littered with examples of the shit “architecture” that gets passed through the council chambers faster than a bowel movement through a cholera victim, and his colleagues’ unwitting success in presiding over the destruction of Croydon’s economic base, the demand for hotel space is bound to plummet.

  2. Sebastian Tillinger says:

    Is Simon Hall qualified to do anything? Can someone answer that?

  3. Colin Cooper says:

    This Council be awarded the prestigious ‘CLUSTER**** of the month/year/century’! This seems more and more appropriate as they continue to shaft ALL of Croydon’s taxpayers by spending OUR money with NOTHING to show for it at the end of the day!

  4. Paul says:

    Utterly incompetent is a phrase that springs to mind when describing this Council. Remember, people, there are council elections in 2022.

  5. Nick Davies says:

    Rotten Boroughs R Us….keep up the good work!

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