Valuing a pub

[Mark T Jones]

O

Before getting a change of use you generally must prove to the local council that the pub is no longer a viable going concern, and if someone in the local area applies to the asset of the local community scheme which will normally be granted it can take years for a change of use.


This is why you see pubs abandoned for years before anything is done to re-develop the area sometimes you can knock a good few quid off the asking price but in reality, it can take 3 to 5 years for change of use.


I will give a couple of examples

An old under preforming pub built in the 1960s in an old miners Village house prices were about average for the country a project was put forward for affordable housing it took 7 years before building started.


A Doctor wanted to convert an old pub into a GP surgery just outside the city centre it took him 4 years. to get the permission required.


The above are not extreme examples it is going on all over the country. Another problem is the pubcos cannot afford to knock off silly money when a pub fails as they probably overpaid for it in the first place back in the late 90s early 2000s when pubcos were in a bidding war to acquire pubs.

I.

There was a case where I used to work of a company buying a 'disused' pub and converting it into a photographic studio. Unfortunately they hadn't got it delicenced and were forced to return it to a pub - which it still is today.

An acquaintance (definitely not a friend) made a very good living from delicencing suburban pubs. The people and the methods he used were pretty unsavoury.

 

[Energise Accounting]

There was a case where I used to work of a company buying a 'disused' pub and converting it into a photographic studio. Unfortunately they hadn't got it delicenced and were forced to return it to a pub - which it still is today.

An acquaintance (definitely not a friend) made a very good living from delicencing suburban pubs. The people and the methods he used were pretty unsavoury.

Yes it only takes a handful of people to object and that is it. It has took the CO-OP 10 years on a pub about 2 miles away from where i live to turn the pub into a supermarket.

 

[HFE Signs]

It's worth what someone will pay, valuation is meaningless unless a buyer shares the same view.

 

[Jeff FV]

On a bit of a tangent, but does a pub have to open a certain number of days each week?

For example, lets say I find a pub for sale because its not doing much business, and I fancy living in it as it provides spacious accommodation, plenty of parking, nice garden etc., and is for sale at a lower price than a house would cost me (as its not a house, but a failing pub)

Could I not buy it as a pub, move in with my family to live “over the shop” as it were (the pub comes with family accommodation) and just open, say, only on Monday & Tuesday evenings when there is limited customers? So, its still technically a pub, but most of the time its not open to the public, but provides me with spacious (and relatively cheap) family accommodation

(Not actually planning on doing this!)

 

[Chris Ashdown]

The rates would be very expensive

 

[BubbaWY]

Things havent moved a great deal on this. We are taking another viewing on Wednesday and looking at getting an intrusive survey carried out.

We are looking at two options:

a) Have a consortium of interested parties putting in around £20k each.
b) Keep it just myself and my colleague, and go down the route of a commercial mortgage for any shortfall.

Whilst going down route a) would spread the risk, it would also mean a committee sort of arrangement which I am not overly keen on.

With option b), I would be averse signing up to something which required personal guarantees. The larger personal funding put in (and therefore reducing the required size of mortgage) would it reduce the requirement of personal guarantees? i.e. the funder would have the property as enough security for the debt? Or does it not work like that?

 

[Mark T Jones]

T

With option b), I would be averse signing up to something which required personal guarantees. The larger personal funding put in (and therefore reducing the required size of mortgage) would it reduce the requirement of personal guarantees? i.e. the funder would have the property as enough security for the debt? Or does it not work like that?

In a nutshell, no chance.

However, if you buy well and put in a large deposit it should be academic.

 

[The Byre]

Things havent moved a great deal on this. We are taking another viewing on Wednesday and looking at getting an intrusive survey carried out.

What I do not understand is why you are so keen to rush things when there is an economic collapse heading our way! What's with the urgency?

Let the pubco sit on the damn thing for a year or so and pretty soon liquidity problems will be severe enough to force it onto the market at a price you can afford without getting a nose bleed or a second mortgage.

Nobody knows what the future economy will look like. Nobody knows what the UK housing market will be like. Anything and everything is possible, from the purchasing power of the pound falling through the floor, combined with the collapse of central governments everywhere, through to "Happy days are here again!" in a year or so.

For all you know, you could give some shivering wreck from the pubco some food in exchange for the deeds to that pub in a couple of years!

Or as we say in German "Abwarten und Tee trinken!" (Wait a while and have a cup of tea!)

 

[BubbaWY]

What I do not understand is why you are so keen to rush things when there is an economic collapse heading our way! What's with the urgency?

Totally appreciate what you are saying, but what if we sit back, someone throws in a silly bid (low) and it gets accepted and we miss out and the pub is gone forever?

I have ended up submitting an ACV application which will hopefully delay things/cause planning problems for anyone wanting to change it from a pub. But the risk of losing it as a pub remains.

 

[The Byre]

Totally appreciate what you are saying, but what if we sit back, someone throws in a silly bid (low) and it gets accepted and we miss out and the pub is gone forever?

A pub that nobody goes to is already gone forever! You putting it on life-support is to just delay the inevitable.

Just sit down and do a realistic numbers session - a pint every 5 minutes - about £24 mark-up every hour, for five hours, seven days a week. Add some munchies and even if you double that figure, it is still £1,680 a week gross. Now take off staffing, heat, utilities, rates, maintenance and cleaning - and if you buy the thing on the never-never, add the cost of a mortgage!

Does that even begin to sound like a business proposition?

Things die: the Handsom cab, the centre of London (in 1666), pretty much the whole of Cockney culture, the Kentish accent - now it's the turn of pubs to exit the stage.

 

[BubbaWY]

A pub that nobody goes to is already gone forever! You putting it on life-support is to just delay the inevitable.

I disagree. I may have mentioned earlier in the thread that my potential business partner bought a pub from the same Pubco 8 years ago. He now owns it outright - no mortgage, etc - has spent a small fortune in renovations, is one of the most popular pubs in the area and has won various awards (including CAMRA pub of the year). It is busy 7 days a week.

Id say the pub we are looking at has been on life-support for a few years but the plan is to try and emulate what he did at his other pub. Its in a densley populated area so there is the potential footfall; its just a case of giving people a reason to come in.

Obviously it would be easy to walk away but we believe the potential is there not just to be an asset to the community, but also to be a decent business investment.

 

[MarkOnline]

If you miss it.....you miss it other things will come along its a patience game. Just make sure you have the necessary funds available when all your ducks line up.

 

[Mark T Jones]

@byre is wrong about the death of the pub - but is is definitely changing, and most non commercial buyers have yet to understand the nature or extent of change

Whilst it's good that you have someone with success on your side, there is no certainty that they will repeat that success in this particular pub.

The concern I would have is that you seem to be a little muddled in your motives and goals. You really need to step back from the community / development angle and view this dispassionately as business proposition

 

[BubbaWY]

Totally get that what has been done in one pub doesnt mean it can be replicated in another but there are a lot of similiarities between the two. Both in location, style and historical trading. But it all comes down to getting the pub at a price which we believe is realistic and workable. If the Pubco gets a bid anywhere near the asking price then thats us out and we certainly wont be getting involved in a bidding war.

My heart is certainly playing a part in the whole thing which is why things may come across as muddled. The pub was run for the last 31 years by someone who was close to me. I am also a big champion of community values and specifically the village where I live. I am not looking to own any other pub, it is specifically this one or none at all.

But that doesnt mean I also arent viewing things with my head and if there isnt a business proposition there then I have no qualms about walking away. In fact, if someone else bought it to keep as a pub then I would be more than happy with that.

At the end of the day it is the finances which will dictate what happens. What it can be bought for and whether that fits in with our own projections.

 

[The Byre]

@byre is wrong about the death of the pub - but is is definitely changing, and most non commercial buyers have yet to understand the nature or extent of change

Twenty years ago, our nearest village had two pubs. Now it has none. The next village had four. Now it has a hotel with a bar (that is empty on most nights). A friend of mine lives in a village that had two pubs until the C19 closures. Now both have closed for good.

That looks mighty like dying to me!

view this dispassionately as a business proposition

THIS!

 

[Mark T Jones]

Twenty years ago, our nearest village had two pubs. Now it has none. The next village had four. Now it has a hotel with a bar (that is empty on most nights). A friend of mine lives in a village that had two pubs until the C19 closures. Now both have closed for good.

That looks mighty like dying to me!


THIS!

I'm loving the idea that you can evaluate an industry on the back of a stroll.

Using the same method, on a 3 mile stroll (in different directions), as of next Wednesday I can go to 5 pubs.

3 - including the one opening this week - have been closed for months or years, have been extensively refurbished and re-opened predominantly focusing on food.

One is a horrible, but incredibly popular family pub, and one a drinking pub, run mostly as a hobby.

That's 2 more than when I moved here a couple of years ago, so proves that the industry is growing

 

[The Byre]

I'm loving the idea that you can evaluate an industry on the back of a stroll.

There were approximately 47,200 pubs in the United Kingdom in 2019, a decrease of approximately 7,600 pubs in the last ten years and over 13,600 pubs since 2000.

Today's figure is about 40,000 (July 2021)

Ouch!

 

[Cookie monster 00]

I think if you market it right you can make a success of a pub still. Particularly village pubs by going in to the experience - a pub not too far from us has been nicknamed beamish because its very traditional inside coal fires etc.. but does very well with tourists.

Recruiting is harder and something to bear in mind if your rural - I saw an advert on a bus which had a picture of a driver which said 'I used to pull pints, now I drive for X Bus Company' so the industry staff wise may be harder now

 

[BubbaWY]

Luckily we arent rural. Whilst the village is a 2 minute drive to open countryside, its only 3 miles to the local town.

We went for another viewing last night and it sounds as though there are 4 interested parties. 1 is looking at turning it into a restaurant, which wont happen. The other 3 are looking at keeping it as a pub - which is good.

Just a quick question on the sale price and VAT. It is listed at £225k + VAT. Say, for example, we offered the full asking price, I assume we would need the full finance to pay £270k? Or is there an accounting process where you can offset VAT on purchases against future VAT on sales?

Probably a silly question, but worth asking

 

[MikeJ]

I've a house in a village of 1500 people, we've two pubs and two pub/hotels. Over the summer you struggle to get a seat in any of them.

The house in Scotland had four pubs within a 5 minute walk 10 years ago. Now it's down to two. One of the closed ones is now a cafe, one has been shut for about 5 years (presumably because of the licencing issues, as it's a lovely building on a great site. Would make ideal housing). The two pubs chase a very different clientele. One does pretty good pub grub, and is family friendly. The other has signs outside saying how cheap the beer is.

The idea that all pubs are bad investments is just wrong. If you've the right site and go for the right market, you'll do well.

 

[The Byre]

is there an accounting process where you can offset VAT on purchases against future VAT on sales?

You get the VAT back, assuming you are VAT registered.

If you've the right site and go for the right market, you'll do well.

This is true for anything and everything in business. But you do have to know what you are doing.

 

[BubbaWY]

You get the VAT back, assuming you are VAT registered.

I appreciate that, but I was thinking more along the lines of having to find an additional 20% for the VAT on the purchase price as opposed to clawing it back on the VAT returns month by month.

 

[bodgitt&scarperLTD]

I appreciate that, but I was thinking more along the lines of having to find an additional 20% for the VAT on the purchase price as opposed to clawing it back on the VAT returns month by month.

If you use a specialist commercial mortgage broker (and why wouldn't you?) then there may well be an option to 'defer' the VAT for the three months. When I buy machinery I ofen do this- doesn't cost a lot, as HMRC are a fairly safe bet for the finance house!

 

[UKSBD]

If the VAT can go on the Mortgage it can be to your advantage.

Like a cashback

 

[pentel]

as opposed to clawing it back on the VAT returns month by month.

When we purchased our factory we put it on our next VAT return and got a refund of the VAT paid.

Get Your return in early, there will be up to 30 days between submission and refund and you may get a visit from a VAT inspector.

 

[eteb3]

If better in a new thread, old-timers please tell me and I'll move this.

Similar aspirations to OP's with respect to pub as a community asset - and this is a v useful thread. (No, I wouldn't dream of doing it alone, no idea about the pub business.)

Out of interest, any thoughts on the Land Registry trail for an empty pub near me? I'm waiting for them to need the liquidity, but this makes it look like it could be a very long wait. (What on earth is that freehold purchase price about? Sale and repurchase financing?)

- Rateable value is £33.5k. (Multiplier x0.5)
- Freeholder is pubco's owner
- Pubco has lease til 2035
- There's an agreement to lease to pubco's subsidiary for a further term after that
- Lease is mortgaged to pubco's debenture holders
- Freeholder bought for £5.9 million! (Possibly bought it from the pubco??)

Basically trying to work out within one degree of magnitude what a realistic offer might look like.

 

[BubbaWY]

I came across something similar on the Land Registry for the pub I am looking at. The price stated was £41,330,000!

It turned out to be one of a large portfolio of pubs the Pubco bought at the same time. So I am guessing it might be a similar case with yours.

 

[BubbaWY]

Interesting development which, at least to me, makes no sense.

I applied for an acv on the pub, the application went in over a week ago. Anyway the estate agent has just emailed the following.

I have been informed by our client that an application to list as an ACV has been Received so unfortunately it looks like they will withdraw from the market and the likelihood is they will keep for the foreseeable future but will remain closed.

I will keep you posted should it come back to the market.


Any thoughts on their approach?

 

[Mr Pringle]

Our village pub has been closed and boarded up for over 2 years. It closed around the same time as it was bought by a Pubco (part of a large group, some operating). According to online data the price paid was £230, it is now on for £375. Thoughts please as there was a large turnout to a meeting held regarding its future. Value? Should we apply for an ACV? There are many ideas for it to be run as a Free House, a cafe, a community hub (there is room) camp site etc. We feel the clock is ticking.

 

[simon field]

Our village pub has been closed and boarded up for over 2 years. It closed around the same time as it was bought by a Pubco (part of a large group, some operating). According to online data the price paid was £230, it is now on for £375. Thoughts please as there was a large turnout to a meeting held regarding its future. Value? Should we apply for an ACV? There are many ideas for it to be run as a Free House, a cafe, a community hub (there is room) camp site etc. We feel the clock is ticking.

It’ll probably still be there in another two years at that price!

By the way, this is an old thread…

 

[Mark T Jones]

Our village pub has been closed and boarded up for over 2 years. It closed around the same time as it was bought by a Pubco (part of a large group, some operating). According to online data the price paid was £230, it is now on for £375. Thoughts please as there was a large turnout to a meeting held regarding its future. Value? Should we apply for an ACV? There are many ideas for it to be run as a Free House, a cafe, a community hub (there is room) camp site etc. We feel the clock is ticking.

You should probably start a new thread

And re-word it, as I'm not really sure what you are asking