Very recently, one of my sworn brothers brought to my attention the above investment opportunity. It is a buy-to-lease luxury hotel investment by Castlewood Group.
Castlewood appeared on Channelnewsasia and Radio live 938 to promote it and personally I saw their advertisement in the EDGE magazine as well. While theoretically the ability to secure promotion on reputable platforms should itself not lend additional credibility to the investment (more a matter of their advertising budget size), anyone can't help but to think that no one wants to be advertising for a scam, so some due diligence should have been executed by their editor (we hope).
Before we get all excited, let's understand what and where our S$35,000 is going into.
The investment opportunity lies in the Nikki Beach Hotel and Spa, Phuket. It is a luxury 5 Star branded Hotel in Phuket, Thailand with 175 rooms, of which 24 are reserved for investors — those investing S$65,000 and more — to use any time they wish on a first-come, first-served basis.
Now to develop the project, Castlewood and its partner Nikki Beach would need financing. There are a few ways to secure this financing - (1) bank loans, (2) private investors.
“We are not raising money to build the Nikki Beach Hotel and Spa project in Phuket but are selling our development, which is already fully financed, and its business to investors,” he said." - Christopher Comer, CEO of Castlewood Group
Now, the project size can be estimated.
A room can be bought for US$650,000 (S$823,069) and then leased back to Nikki Phuket.
Given there are 175 rooms, the project should be worth at least S$144 million.
Given the size of the project, it makes sense to secure bank loans. I have my doubts that construction can continue seamlessly based on funding from small time investors putting in S$35,000 each.
Also remember the returns promised were in the range of 5 - 18% p.a. for the investors. So stripping out for salaries and the commissions for the excellent sales team, we are looking at a much reduced capital for the development.
Let's scrutinise the advertisement further (image above).
Next benefit stated: Singapore's hottest investment
Once upon a time, Singapore's hottest investment was bubble tea. How that story ended you and me know better.
If an advertisement wants you to invest because it is currently the hottest investment, inevitably it also wants you to think that you are losing out big time if you are not putting $$ in. I would stay clear of such messages.
Within the advertisement, you have Mr Pandey from banking sector saying that the team at Castlewood Group (I supposed he meant the sales team) was open, honest and thoroughly professional. There was no ambiguity about returns and he received his first cheque as promised.
I would take the above testimonial with a pinch of salt. A customer from banking sector does subconsciously lend credibility to the investment that is legit (up to now, I still think the business is legit by the way).
However, professionals can make bad investment decisions too. I was at the seminar conducted by Sunshine Empire investments and I saw doctors and lawyers putting in money into the ponzi scheme. Lehman Brothers (filled with professionals) failed too.
Still on Mr Pandey. Look, getting the first cheque is a must for any investment scheme. At worst, even if this is a MLM-like scam, you need the initial carrot to keep attracting the initial waves of customers. Word-of-mouth is extremely important so the first cheque must reach the customer as promised. Whether the 2nd or 3rd cheque will come depends on when the music stops (imagine Musical Chairs)
I have no idea how Mr Pandey is able to judge that the Castlewood team is honest, but hopefully it is not based on them looking professional wearing suits, knowing the sales pitch well to answer all the difficult questions. It is a given for any good sales team.
Take another example testimonial. Ms Dihardja is a senior associate director, again another "credible" customer. She remarked that the salesperson at Castlewood made her feel at ease, a feeling of safety and trust. That to me can be as much attributed to the skill of the saleperson or the investment attractiveness. More incredibly, she concluded it is a fruitful and pleasant investment that everyone should invest in. Wow, that is a very broad statement to make.
I googled for her name and she is a property agent with Eastview International. Can we therefore conclude she knows the investment better and hence it is ok to follow suit? I suggest we do our own due diligence into the underlying business.
See Returns Within 30 Days!
Really?! Such a short gestation period, where's the risk!? That's exactly the message - the advertisement succeeds when you start to believe that the risk-reward profile is spectacular. I would love to understand who is funding the returns after 30 days? Is it the hotel visitors or the next fella who is putting in the $35,000? As the good old saying goes: When something seems too good to be true, it usually is.
Free Inspection Visit
I believe this lends credibility to the investment, personally if I can see the business I am putting my money into, it certainly gives me a better night's sleep.
Anyone went for the free visit already? How did it go?
You Can Only Invest When your Mind's at Rest
I believe they really want to say is "Your money is safe". Personally when it comes to investments, I only invest when my mind's active (versus at rest), in fact, my heart is the one that should be at rest. Too often being too emotional about investments will lead to unintended consequences. We should avoid that.
Netizens' views - Concerns
I summarised below some views that netizens have shared in forums such as hardwarezone.com.
(a) No progress on construction?
While there are construction photos on Castlewood's site, there is no opening date given for the hotel / resort. Apparently, one netizen says the hotel is said to open in 2013. If so, we should be able to pre-book the hotel.
In May 2012, Castlewood wants to commence hotel, spa and beach club in Phuket in 2013.
In Apr 2013, the date has been pushed to 2014.
The project commenced construction in Feb 2012, and there is no indication how much would the construction costs amount to and if they are currently over-subscribed in terms of investments.
Castlewood is not regulated by SGX / MAS, so in the event they really run away with your money, you have no recourse.
It is important to note that First America is not guaranteeing your returns and capital gains; the guarantee is on the underlying asset (e.g the hotel).
© Lock-in period and lack of clear exit strategy
Castlewood is to retain 50 per cent of the property. Investors are said to be able to exit in 2016 (may I ask who's the buyer?), and that the hotel has been contracted with CBRE Thailand to be sold in 2020. 2020 is 6-7 years away, and any investor will want to stay to wait for the capital gain.
“We feel that a hotel usually peaks in its fifth or sixth year, and therefore it is best to sell it then to realise the maximum returns,” Mr Comer explained.
Are you sold?
The Best Advice
Incidentally, the best advice is given at the end of the advertisement. You guess it - the disclaimer.
"All forms of trading and investment carry risk. Such activities may not be suitable for everyone."
I can't help but contrast the above advice to the two lines above it saying that this is a simple and transparent property investment, which shows you the way in, and a safe, secure and profitable way out. Nothing in the sentence suggest there is downside risk or that it is not suitable for certain people.
My view is Nikki Beach brand is perfectly legit; Castlewood Group is also a legit business based on its stated intention.
However, I cannot see from a business model perspective how they are able to deliver their promises of a guaranteed return when the underlying business is still in early construction stage after 1.5 years. Who is really funding those guaranteed returns to the investors?
I can't help but think it is the newer investors who just pumped in $35,000 each. If so, the party may potentially end sooner than we thought.
As usual, the above are my personal thoughts and your views might differ.
Please kindly do your own due diligence before investing.