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Den of Sin? Or a Gold Mine ?

This week we exchanged on a Pub in Kensington, Olympia. It was introduced to me a couple of months ago, off market. I was shown the property from the outside and we snuck in to look at the ground level pub and the basement. The two floors above, which were residential, were not seen. I simply had to stand outside and make an assessment of the condition they would be in on the inside.

After the property was shown to me I was told the contract could be delivered at £1.25m; I was then subsequently told we couldn’t have the contract, as there was someone on the scene already purchasing it and the Pub group selling it wanted to give them a fair period of time to exchange.

This annoyed me and made me want the property even more; rather like a child who only wants to play with the toy another child has. I kept the property in my radar and persistently enquired, until the group selling it tired of the current purchasers’ non performance and my persistence.

The contract was then sent over and we exchanged a couple of days later on behalf of a client.

The rumor I heard was that the previous purchasers didn’t have the funds to do the deal and were planning on flipping the contract to someone else for a quick profit, without actually exchanging on it themselves. You find this occurring from time to time in the market. The contract is agreed using false proof of funds or a lawyer’s letter and then they play for time whilst trying to find a purchaser to sell it on to at a higher price.

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We were asked to attend the seller’s solicitor’s office to exchange on the contract, and of course we had no issues with this. Though we didn’t realise at the time that the solicitors were in Suffolk!

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So then it was agreed to do it as soon as possible following receipt of the contract. The lawyers from the seller’s side were very relaxed and did not feel the urgency of the situation.

However in these situations it’s very important for your lawyer to act fast and to build a good rapport with the other side’s solicitors. This alone can either save or destroy the deal. This is why it pays to have solid lawyers on your side.

You can never be relaxed with these types of situations, you may find purchasers taking their sweet time with a purchase until they see another buyer is on the scene and then all of a sudden they will develop a laser focus and start moving and get the funds even if they didn’t have access to them.

The property consists of a pub with a basement and two floors above made up of two residential flats. It is called The Jam and is at 58 Milson road W14, a small distance from Kensington Olympia station. The property is freehold and is estimated to be around 3,300 sq ft. That’s a lot of space for this sort of money, it comes to £378 per sq ft.

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The flats alone are expected to be worth £750,000 each, minimum.

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VAT was applicable to this lot. So it needs to be purchased in a VAT registered company in order for the VAT to be claimed back.

Foolishly I approached an Islamic bank to try and have this funded, this along with another deal we’re hoping to exchange on this week. I got flatly refused on both, not because they weren’t good deals; not because we were asking for too much money; it was because they were ‘Haram’, dens of sin. One of the tenants in our Ealing deal was Ladbrokes advocating gambling, and the other was a premises serving alcohol. Luckily my personal criteria is not so stringent. It actually didn’t even occur to me to think these may be barriers to an Islamic bank lending on them.

We originally tried to push for a two month completion, as the policy is the longer the better. This way you have more time to finance and sort any issues out prior to completion. The pub group were pushing for four weeks, we then settled on a six week completion.

The other main issue in purchasing this property was whether we can kick the tenant out, and the answer is we can, giving him six months notice. This suits us, as he is only paying £50k per annum for the whole building, a lot lower than what he should be paying. This was an important point which would have been a deal breaker if we couldn’t remove him.

With the tenant in there the property worth would be defined partly on the yield and partly on the development potential on vacant possession, whenever this would occur. The longer the tenancy the more it would be valued on the yield.

As we can get rid of him in six months the yield is almost irrelevant. It’s purely the development angle we are looking at.

As time was tight and we needed someone to purchase it blind on our say so, we approached a client who had already traded and made money with us. He also had money with us to close another deal which was in the pipeline but for various reasons had been delayed. This money was transferred from that deal to exchange on the pub, due to the time constraint.

At the moment the client is deciding whether he wants to take the whole purchase of the pub himself or whether he would like other investors to come in on this deal.

We have two ways this deal can go: One we sell this pub on prior to completion in six weeks for £1.5m plus which is possible, given the upstairs two flats alone should be worth this amount with a little refurbishment. This would mean with £125,000 deposit we would make £250,000. The other is we complete the deal, get rid of the tenant and then do the flats up, this will yield us in the region of £2.5m.

Either way we believe this is an exceptional deal, and these do not come around often, especially freeholds.

The Real Deal

St John’s Wood, London, NW8

Purchase Price: £1.834m

  • A three floor Mews house in a quiet lane off St John’s Wood High Street
  • Freehold
  • Integral garage
  • Priced at £1,051 per sq ft, properties in this area are priced at £1,500 per sq ft and above
  • End value after works expected to be £2.75m currently
  • Cost of works expected to be around £200k
  • Prices in St John’s Wood are heating up! The price is likely to be higher than our estimates

Call us now if you like the returns on this deal, you do not need the full amount!

Suresh Vagjiani

Sow & Reap

A Property Investment Company

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!Tips of the Week

The internet has limitations when researching properties. We have done deals where the statistics on the internet did not support our decision, but our local knowledge did and our clients made money on them.

To determine if anything is a good investment, you should look at the risk versus return factor. Generally if an investment is high risk it is high return and low risk means low returns. Property is considered low risk, hence the banks will lend you 75%, BUT you can make: high returns, if done in the right way.

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