Valuing a pub

[BubbaWY]

A pubco has put my local pub up for sale but it seems to have a ridiculously high valuation. Ive been connected to the pub for 30+ years so know its trading history plus the state of the facilities i.e. it require major renovations (decoration, rewiring, plumbing/heating, windows, etc).

I dont want to see the village lose another pub so am interested in buying it - potentially on my own but more than likely look at forming some kind of community interest group using the advice of Pub is the Hub and the Plunkett Foundation.

Can anyone please offer any insight into how the pub would have been valued? On the sale information, it states trading history wasnt available so I assume this hasnt been taken into consideration.

 

[The Byre]

Pubs aren't worth anything! Well, the building may be worth something, but a pub as a going concern is only worth more than a bucket of warm spit if it attaches other activities to that building. Top of my list would be a micro-brewery and a restaurant (putting the brewery first, as that is at least scalable!)

That means that if the pub building for sale would be worth £500,000 in perfect condition and it requires £100,000 in various renovations, then that building is worth £400,000. Goodwill and equipment - £0.

BUT - house prices in the UK are waaaay too high and will probably come down - and pub buildings that are unuseable as dwellings more than most!

I'll put it this way - the village pub near us was up for sale as a going concern with a large restaurant and eight-bed micro-hotel for £500k. Then a year later, it was £400k. Time passed and the building didn't get any better as it was standing empty. It sold for £150k.

 

[BubbaWY]

I'll put it this way - the village pub near us was up for sale as a going concern with a large restaurant and eight-bed micro-hotel for £500k. Then a year later, it was £400k. Time passed and the building didn't get any better as it was standing empty. It sold for £150k.

So biding my time may be the answer Thanks for your reply.

 

[The Byre]

Everything depends on how suitable the building is for other things. The local pub was on the main road and not really a good place for a house - but it gave a large family with a husband who was good at DIY a cheap and roomy starter home!

 

[BubbaWY]

It would probably make a decent house though I believe its hard work having a pub de-listed as a commercial property.

 

[UKSBD]

It may be priced high because they want to convert it to housing.

They advertise it for a few months, go to council saying no body is interested, it's no longer viable as a pub, which increases chances of getting planning permission.

 

[BubbaWY]

I am considering applying for an ACV order which would make it more difficult to sell.

 

[Clinton]

A pubco has put my local pub up for sale but it seems to have a ridiculously high valuation.

It's not a valuation, it's an asking price. There's a difference.

I once approached a business broker about a business on their books advertised at what seemed to me a ridiculous price. Being a numbers man I asked for a copy of the valuation report.

They hedged, and hedged.

The guy who did the valuation was on leave and they needed to wait till he got back.

Then three weeks later when I asked again I was told he had left the company.

So I pressed them to do a new valuation and give me the valuation report.

Then they finally admitted to me that the original valuation was ....

<drum roll>

Based on the vendor's "aspirational price".

So basically they asked him how much he'd "like" for his business and they tried to pass that off as an official valuation.

Assh*les!

But that's pretty common in the lower market (sub £5m businesses).

 

[Paul Norman]

I am guessing the high price is in the hope that one of two things will happen:

1. A builder will turn it into flats
2. Someone for whom the romance of pub ownership outstrips their business acumen.

It sounds as though you are neither.

Pub ownership is far from romantic, it is, mostly real graft. And if, say, a pandemic happens (surely not) you get closed for a year.

In my younger days, we all piled out the office on a Friday and had a couple of pints on the way home. Now we don't. And I suspect mostly people don't.

We have a similar situation here. A pub has closed. And even though the building is not up for much money, there are no takers. All the village are sad that the pub has closed. But the truth is it used to typically have about 4 people in it most evenings. In the last 10 years 3 people have tried to get it going.

It wasn't a bad pub, to be fair.

If you want to do this, big them your own view of what it's worth. And as they have started the bidding high, you get some reality in. You never know....

 

[BubbaWY]

Would it be reasonable for me to request a copy of the valuation report?

 

[Paul Norman]

Would it be reasonable for me to request a copy of the valuation report?

Reasonable, yes. And I am sure they will be happy to give it.

But of questionable value. It isn't going to persuade you to up your offer, I suspect. I hope. It isn't, is it?

 

[MattRumbelow]

It may be priced high because they want to convert it to housing.

They advertise it for a few months, go to council saying no body is interested, it's no longer viable as a pub, which increases chances of getting planning permission.

A pretty astute observation of how these things tend to work.

 

[BubbaWY]

Reasonable, yes. And I am sure they will be happy to give it.

But of questionable value. It isn't going to persuade you to up your offer, I suspect. I hope. It isn't, is it?

No. I appreciate the pubs potential but also appreciate the issues and investment required to modernise. My heart is attached to the pub, but my brain will be leading any decisions.

 

[Paul Norman]

No. I appreciate the pubs potential but also appreciate the issues and investment required to modernise. My heart is attached to the pub, but my brain will be leading any decisions.

Excellent.

The pub's potential, as you realise by the sound of it, has little or no bearing on it's value. The potential will only be unlocked by your hard work, and therefore does not increase what your offer should be as such.

Making a low offer for a business is OK. Being able to support that offer is important, of course. And negotiating is OK, too. But avoid the temptation to give the fruits of your future success to the current owner.

 

[BubbaWY]

Hmmm, they havent done a valuation report.

 

[MBE2017]

As Clinton has mentioned, this is an asking price.

A local brewery rep over thirty years ago was gleefully celebrating having sold a village pub to a real sucker, they got double the amount they thought they would get, just as hundreds of pubs were closing. The buyer invested his pension pot into his dream village pub, then realised only three or four locals visited most days. He lasted a couple of years before losing everything.

Forget what they are asking, offer what you feel it is truly worth. As for trading figures not being available, well I have heard some big lies but few as big as that one. Breweries know everything about that pub, it’s their business.

 

[Deleted member 59730]

Breweries know everything about that pub, it’s their business.

I was told that a serial pub owner locally only bought pubs after taking the beer delivery drivers out to dinner several times.

 

[Bobbo]

Depending on how interested you are, it might be worth appointing somebody yourself to carry out a valuation of the building. Pubco would of course have to grant you access but, if they want to sell, no reason they should decline.

Valuer might also be able to shed some light on pubco's ulterior motive in listing for such a high price as others have suggested.

 

[Talay]

Aside from the conversion value into residential the valuation is a simple calculation based on the income generated, effectively the turnover.

I've seen places that would be £2m plus as a house go for £600k as a pub because that was all the turnover would support.

In the end, they will all go for residential and probably only right. We don't as others have said, head for the pub multiple times each week and we have no need to support such an endeavour.

 

[DontAsk]

It may be priced high because they want to convert it to housing.

They advertise it for a few months, go to council saying no body is interested, it's no longer viable as a pub, which increases chances of getting planning permission.

This ^^^ Seen it happen twice in the village where I used to live.

 

[Bob Morgan]

Pubs aren't worth anything! Well, the building may be worth something, but a pub as a going concern is only worth more than a bucket of warm spit if it attaches other activities to that building. Top of my list would be a micro-brewery and a restaurant (putting the brewery first, as that is at least scalable!)

That means that if the pub building for sale would be worth £500,000 in perfect condition and it requires £100,000 in various renovations, then that building is worth £400,000. Goodwill and equipment - £0.

BUT - house prices in the UK are waaaay too high and will probably come down - and pub buildings that are unuseable as dwellings more than most!

I'll put it this way - the village pub near us was up for sale as a going concern with a large restaurant and eight-bed micro-hotel for £500k. Then a year later, it was £400k. Time passed and the building didn't get any better as it was standing empty. It sold for £150k.

I deal with many Auction Properties on a regular basis - The market has become saturated! I have a Natwest Bank Branch on the books (Built for £1.25 Million in 1980 - Excluding Land) which has remained void for 2 Years. It is due to make its third appearance at auction with a Reserve Price of £100,000! Time and effort has also been expended in obtaining Change of Use. It has consent for 2 Options - Still no interest!

 

[The Byre]

House price corrections always start at the top and at the white elephant end of the market - so vast estates in Scotland and pubs and bank branches and stuff like that. It can take a long time for corrections in those properties to percolate down to the regular housing market.

Example - at the end of our little one-mile lane, there is a palace built on a river island. A rather nice chap who was the CFO of a major communications company in America bought the island and surrounding land for about £4m and added several hundred acres of forest to it and renovated the eight-bedroom lodge on the island, built a new bridge, two estate houses, several outbuildings and a huge palace. He reckoned he put about £22m into the place.

He left the UK for tax reasons and it stood empty for three years. In the end, the entire estate was sold to a family of immeasurable wealth as a holiday retreat for under £7m. That kind of haircut may be coming to a mortgage near you (though, because of the effects of negative equity on mortgages and movements, in the form of a fall in value via inflation).

Our local branch of RBS has been standing empty for five years. No takers!

 

[UKSBD]

This ^^^ Seen it happen twice in the village where I used to live.

It's been going on in a village near me for 5 years plus

The villagers managed to get the pub designated as an Asset of Community Value that stopped everything for a while.

Latest was they then wanted to split it so part was residential but pub remained. that was rejected a recently - https://apps.stratford.gov.uk/eplanning/AppDetail.aspx?appkey=QTAJH5PMG9R00

 

[NickGrogan]

I deal with many Auction Properties on a regular basis - The market has become saturated! I have a Natwest Bank Branch on the books (Built for £1.25 Million in 1980 - Excluding Land) which has remained void for 2 Years. It is due to make its third appearance at auction with a Reserve Price of £100,000! Time and effort has also been expended in obtaining Change of Use. It has consent for 2 Options - Still no interest!

Where is this?

 

[Mark T Jones]

Pub valuations are heavily based around turnover - specifically turnover split by wet, dry and rooms.

That equation has been shaken a bit by recent events, but I believe valuers are getting back on track.

As others have pointed out, if it is being sold as development potential there will be different factors, but that really isn't as easy as it might appear - if it's an historic pub in a remote village there will almost certainly be covenants which make that trick (to varying degrees).

A also mentioned, you are at liberty to make an offer, just be sure that you are absolutely clear on what you are buying, any covenants - oh, and that you know how to run a pub business.

 

[Bob Morgan]

Where is this?

North Staffordshire

 

[Talay]

This ^^^ Seen it happen twice in the village where I used to live.

Yeah, I'm doing it. £400k versus 800/900k. Thanks for £10k a week.

 

[fisicx]

Pubcos don’t want pubs anymore. They want family restaurants that sell cheap food. The beer comes last on the list of priorities.

 

[Mark T Jones]

Pubcos don’t want pubs anymore. They want family restaurants that sell cheap food. The beer comes last on the list of priorities.

Pubcos aren't stupid - it's worth paying attention to what they do

 

[BubbaWY]

Its no surprise they are selling my local. Its only a small pub, doesnt really have the facilities or space to do food and trade has declined over the years due to the high bar prices. For bog standard lager you were looking at £4.20 for a pint where it was only £3.40 at the nearest pub.

An interesting turn of events late last week when I was contacted by the landlord of another pub (3 miles away) that I sometimes drink in. He bought his pub (which had a terrible reputation) from a Pubco around 8 years ago, got rid of the riff raff, and it is now one of the most popular pubs in the Borough. He has won numerous awards including CAMRA pub of the year.

He is interested in us buying the pub as a partnership and running it on a similar model to his other pub. Obviously it all comes down to getting the pub for the right price so we will see what happens. But with his experience and my local knowledge we would have a fighting chance.

 

[Chris Ashdown]

The price is whatever you are willing to pay, make a offer they may accept they may decline. that's up to them. Find out if you can get a mortgage for your price first, unless you have the dosh in readies

Do not just think you know better then the old landlords, the chances are they had plenty of advice on things to do and tried them al yet still the customers dropped off, so fair bet little change of changing it around

 

[BubbaWY]

Latest on this is I was contacted by the landlord of another pub in the local area (around 2 miles from this pub) who I know as I drink up there sometimes. He bought his pub (from the same Pubco) for over half the advertised price. He has turned the place around and won various awards including CAMRA pub of the year.

Anyway, he has asked if I am interested in buying it together as a partnership. Him with his experience and me with my local knowledge. We went to view the pub last night - I already know the place inside out but he doesnt so it was worth a good look around and also see what fixtures and fittings have been left.

The Pubco have put in a caretaker and he said the only people who have been to view it are property developers who are looking at it as a view to developing into a house, or maybe 2. This obviously isnt good news as it could well make the Pubco more reluctant to accept a lower price or cause a bidding war.

The Pubco obviously wont care whether it remains as a pub or not and will want to realise as much from the sale as possible. We are currently looking at the figures to see what our ceiling bid would be before we walk away. But has anyone been through something similar? Is there anyway to block the sale which would see the pub close? Ive previously successfully applied for an ACV on a pub, but I dont think there would be any benefit in this instance.

 

[Mark T Jones]

Latest on this is I was contacted by the landlord of another pub in the local area (around 2 miles from this pub) who I know as I drink up there sometimes. He bought his pub (from the same Pubco) for over half the advertised price. He has turned the place around and won various awards including CAMRA pub of the year.

Anyway, he has asked if I am interested in buying it together as a partnership. Him with his experience and me with my local knowledge. We went to view the pub last night - I already know the place inside out but he doesnt so it was worth a good look around and also see what fixtures and fittings have been left.

The Pubco have put in a caretaker and he said the only people who have been to view it are property developers who are looking at it as a view to developing into a house, or maybe 2. This obviously isnt good news as it could well make the Pubco more reluctant to accept a lower price or cause a bidding war.

The Pubco obviously wont care whether it remains as a pub or not and will want to realise as much from the sale as possible. We are currently looking at the figures to see what our ceiling bid would be before we walk away. But has anyone been through something similar? Is there anyway to block the sale which would see the pub close? Ive previously successfully applied for an ACV on a pub, but I dont think there would be any benefit in this instance.

Shame; an ACV is a useful stick to hit them with.

Other factors will include any local covenants (I'm not sure but I think these will show on Land Registry). Plus the attitude of your local licencing authority to de-licencing.

In our area the move is towards allowing development on the land but to insist that a pub of some form is reinstated. (sadly for my local it's an SSI, so no planning)

Caretaker managers are well knowing for stripping cash, stock and assets.

The advice I always give to anyone entering the licenced trade (or opening a restaurant) is it's not what you think it is - there is money to be made, but 80% of newcomers won't succeed because they don't understand the business.

 

[BubbaWY]

When I was first looking at buying the pub, it was as some sort of community interest group which an ACV would have been useful for. But, if we are to buy it privately, it could hinder us.

I might drop the Council planning department an email just to see if they can offer any advice.

 

[Chris Ashdown]

It would not hurt to advice by letter your local planning department that you are seriously looking to buy the pub as a going concern and wondered if there were any plans for the area that might effect the pub, that way the planning to change use could not argue there is no interest in it remaining a pub. nothing ventured nothing lost apart from the price of a stamp

 

[Glenn Martin]

If you do not agree with the asking price what do you think its worth. A Village pub is almost impossible to value currently, so ignore the asking price offer what you think its worth to you. As the alternative will be to let it sit idol they may well take an offer to shift it as I imagine most Pubcos will be currently looking long and hard at there estate to ditch non viable sights. As mentioned earlier the likely reason for the high asking price is to get change of use to get domestic property there, as its easier if you can market it for a few months get no takers then claim its not viable, that happened to a pub near me, was marketed at twice the value it was worth no takers there is now 9 houses under construction on the site.

 

[Energise Accounting]

Ok a few points.


1. The pubco will know exactly the trading history


2. Pubs are generally valued on turnover normally anything from 1.5 to 3 times turnover depending on various factors.


3. You will probably see in the sales particulars may be suitable for redevelopment an indicator it is under preforming pubcos dont sell off good pubs or pubs with potential.


4. A pub with good wet sales will be worth more than a pub with good food sales. so, a wet led profitable pub will be worth more than a food led pub.


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.

In answer to your question the pub would of been valued on what is called. A fair maintainable trade and you can work this out roughly by the business rates valuation. The actual FMT is calculated by the Valuation Office Agency.

 

[BubbaWY]

Thanks for your comments. The current rateable value of the pub is £3,100. Not sure if that helps or not?

 

[Energise Accounting]

if you PM me the postcode of the pub i will do a quick calculation of FMT for you.

 

[BubbaWY]

Thank you, post code sent by PM.