I assumed the slot machine business was a dead business, unless it’s in an amusement park near a popular beach location.
A client has asked us to look at refinancing his commercial property, which is just outside of London going North. He has chosen to give the whole substantial building to a single tenant, who in turn sublets it to various tenants ranging from a night club to a hair dresser. Included in the mix is a slot machine business, where this tenant made his money several decades ago.
He seemed to rent half of the town. He took me into the slot machine premises, and talked me through the numbers. It is open 24 hours, and fully staffed. It also provides free soft drinks and snacks to its punters; a common trick casinos use to ensure clients do not leave the premises, some even provide a hot meal.
He mentioned to me the client wins 84-85% of the time, the rest the house keeps. This relatively small premises generates £5K net for him per week. There was a time when he had a business which had hundreds of these, he himself was worth hundreds of millions at the time. This is how he had made his fortune; and then lost it all. His story is one you could write a novel with. Perhaps one to cover later on.
The purpose of my visit was to raise money on the property, and to get a good grip of the case it’s important to understand it first hand, not only behind a desk. As a case is only as good as its weakest link; if identified, there’s a chance it can be controlled.
There are several widely varying types of businesses here, and therefore there is a chance the valuation could end up being way off target. With this type of asset, my guess is if I bring in three different valuers, I will get three wildly varying valuations.
One way to control this is to insist on a desktop valuation prior to a site visit. Some will likely attempt to charge you for this endeavour, but with some arm twisting it can be done for free. It came to light that a valuation had been done, and had come in at an acceptable level. It would make sense to use the same one. The first step is to ensure the firm is on the panel of the lender, and then to ensure you have enough leverage to get them instructed. I would ideally like, in this case, not just to get the same firm but the same valuer to come out again. This way the chances of slipping is minimised.
The valuation is actually instructed by the lender and solely for the lender. So, it’s not always straightforward. For me, it was a very insightful trip, to a sleepy town, where I never would have assumed a small outdated business would be generating this kind of cash flow. It just goes to show, you’re always learning; and never to assume.