The boom: a field day for spivs and sharks

The boom: a field day for spivs and sharks

Every decade or so, a collective madness descends upon the property market. The symptoms become so widespread that, at times, it seems almost no one is immune — not individuals, companies nor banks. The prevailing belief is that property is a one-way bet, despite the evidence across the decades of boom and bust.

At one stage, five or so years ago, one in seven new properties in the UK was being bought by investors of Inside Track, a company that claimed "special expertise" in buy-to-let investments and charged people £10,000 up front to attend seminars where its snake-oil salesmen dished out spurious insights.

For two or three years at the top of the market, premiums were being paid for leased pubs that were way too high, draining licensees of capital better spent on the business itself. Seasoned property investors piled into the acquisition of tranches of pubs at 11 or even 12 times earnings, way above the historic average of around eight times. And banks, which should know better, queued up to finance these deals. In the case of Lloyds Bank and Admiral Taverns, the outcome a few years later was a £600m writedown, a pretty quick way of halving the bank's money.

The collective madness was particularly noticeable at the public auction market, where gullible investors were ready buyers of over-priced freehold property. It was a field day for sharks and spivs. The Kiely family, based in the north-west, loved auctions. Paul Kiely generated around £160m at the pub auction market with his Provence vehicle, which sold over-priced freehold pubs to mug investors. The company came crashing down in 2006 shortly after Alan Bowes' London & Edinburgh Swallow Group, another company that developed a taste for the easy pickings of the auction market, toppled over.

Last week Paul's brother, Shaun, was jailed for three years for defrauding investors in deals exceeding £1.3m. Shaun Kiely deceived investors in auctions in 2005 by promoting his S-Mart convenience stores as profitable freehold investments when very little trading was actually being done. Before and during 2005, his company purchased more than 50 low-value commercial retail properties across the country and created 20-year commercial leases to S-Mart for the properties before selling on the freeholds at auction. Shaun Kiely also entered the pub business for a while with a company, Penny Lodge Developments, which, like his brother Paul Kiely's Provence, was buying freehold pubs and trying to sell them for big profits at auction, thanks to inflated rents. Thankfully, Penny Lodge was short-lived.

Provence was a slightly different kettle of fish. This, in my view, was a legal scam — just a really poor investment. But as with Inside Track investors, the 'madness' blinded many to the absurd amount of risk involved. The Morning Advertiser did its level best to expose the shortcomings of the Provence and Penny Lodge business models at the time. (It was heart-breaking to meet Provence's naive tenants as they lost money at record speed in the company's massively over-rented pubs.) It's good to see justice arrive on Shaun Kiely's doorstep.