14th October 2017
Last week I was introduced to a pub in central London, which I was assured was a bargain. The price tag is £2m for a lump of building, which consists of over 4,000 sq. ft. This, on the surface, is extremely cheap.
We have had some experience with a pub just around the corner. We purchased this for our client, in 2013 from memory. At the time, it was a working pub, so we purchased this as what’s known as a going concern. This meant, contrary to what we were being told by the sellers – who happened to be a major chain of pub owners – the deal would not attract VAT. This saved the hassle of paying a full 20% extra for the site and then having to claim it back later on down the line. The tenant of the pub was a nice fellow, but one who didn’t always pay his rent on time. When someone is a little too friendly on your visits, by plying you with complimentary drinks, you should be suspicious; as there is no such thing as a free lunch. It was obvious he was preparing us for future irregular rent payments. Issues such as irregular rent payments are ground level issues; on a strategic level our plan was to get planning and sell the pub off with the benefit of planning.
Our architects advised for us to go for a pre app, and then follow with a full application. The idea of this is to ensure the application does not hit any posts when you submit it – that’s the theory anyhow.
The application was smooth, both during pre app and full application stage. The property was granted planning for 9 flats, within 9 months. We were advised that it was not a good idea to get rid of the pub, as this would have been seen to be too drastic in terms of planning. A pub is seen as something of ‘community use’, personally I cannot fathom how a facility which enables a community to pour alcohol down their throats is of any help; it’s arguable that it is of detriment to the fabric of the community, but there you go.
In terms of planning we were advised to retain the pub, and ground and lower ground levels, and get the planning for the residential flats above. There was a possibility of getting planning for the pub, but we would have needed to demonstrate we had been marketing the pub for a tenant for a period of 12 months without success.
The planning came through, and we sold the pub for £1.75m at an auction, from a purchase price of £1.25m only 9 months prior.
Given this experience, and the fact it is the same council, I do not see why the same cannot be replicated on these new premises. In addition, there are significant comparative advantages to this site, in relation to our previous deal.
Firstly, you’re purchasing at £400 per sq. ft., which is extremely cheap. Although, this is not the way to truly measure a development deal. It merely gives you a crude indication. This property has outside space, and can be demolished, meaning it is not listed. Furthermore, it is empty, which potentially means there is a greater chance of a more wholesome conversion opportunity, without the need for VAT on the build. The deal is ready to be executed, and we hope to report an exchange of contracts on this site in next week’s article!