Student Accommodation - Don't Get Ripped Off! (Part 2)

In my earlier blog post on Student Accommodation (published 13 April 2014), I presented arguments as to why I thought student accommodation was not a wise investment.

Some have said that the arguments were too theoretical.  Yes, they have great faith in these companies. Why would these companies want to 'cheat' investors?  Some of these companies have very big operations and they look to be very well established, so it should be quite safe.  Really?  Let us consider the real life example of Opal Property Group.

Opal Property Group
This company was founded in 1998, by a chap named Stuart Wall.  It went on to become the largest provider of private student accommodation in the UK, providing accommodation for more than 20,000 students.  This is a snapshot of is website.

UK's largest Student Accommodation Provider

What Happened? 
In March 2013, it was revealed that Opal was in trouble.  One of its subsidiaries, Ocon construction, was to be put into liquidation.  It was then revealed that all the other companies had their funding extensions from finance companies withdrawn and the entire group was insolvent.  To cut the long story short, Opal's entire group of companies went into group administration.

How Did This Come About? 
Apparently some investments done by this big company went awry. Creditors are now going after the company.  As of writing, Opal Property Group, the largest private student accommodation provider in the UK, is under group administration.   The founder is now trying to take legal action against lender Royal Bank of Scotland for an interest rate swap product behind the collapse of this business. According to this article, the Group has £886m in debt.

Learning Points For Investors
Let me re-iterate the most important point from my earlier blog post - what exactly do you own if you invest in these student accommodation products?

Obviously, you do now own any title deed.  Even if you think you do, it is some legal device that has been artificially created, that gives you very little, if any, rights.

Implications
Which means you are at the mercy of the company.  Even the largest student accommodation provider in the UK could go into group liquidation.  What makes you think that these smaller companies are any safer?  If things turn out well, good for it. However, if things turn sour, what is your exit plan and what are your rights?

Think very carefully before you invest in these products.  You have been warned.

Some References:
Opal Group - wikipedia
Ocon Administration Due To Operational Issues (8 March 2013)
Opal Property Group Considers Asset Sell-off (31 Jan 2013)