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The Weakest Link

10th March 2020

I had a call from an agent with whom we have worked with many times, for sourcing property.  This time he had a request from me.  He had an overseas buyer aggressively looking for hotels in London, he was flush with money and had already purchased a few buildings.

Coincidentally, I was aware of a client, for whom we arranged finance for a hotel many years ago, who is selling up.  His aim is to upgrade and purchase larger hotels.

A viewing was arranged for the buyer and his wife.  What was very strange to me was he did not know the area at all, and was asking about the vicinity of the train stations.

After interrogating the manager of the hotel, it was clear there was interest.  This increased once he took a walk around the location; the next day he was very keen.

The hotel is located in Hammersmith, on the borders of Fulham.  It was once a snooker hall.  I remember it well.  When it was purchased, I had a slate snooker table out of the deal.  I kept it for all of 3 months, after which I got bored, and missed the space.

I managed to fish out some interesting information from the experience.

Coincidentally, we are purchasing a shop and uppers just down the road from the hotel, on behalf of another client.  The property already has planning for a 7 room HMO.  However, the current owner has had a pre app for an apart-hotel.  This allows one to short let the property, renting it for as little as one day.  The apart-hotel would dispense with the need for communal spaces and minimum room requirements.  Therefore, you could now fit for example 14 rooms into the same space.

In truth I could not get my head around the concept, and was unsure how one would test whether there was demand there.  This is unknown territory for me, both from whether the demand exists and logistically on how this would operate, as essentially you’re running a hotel, albeit a mini one.

This point was addressed by the general manger, who said the demand for this type of accommodation is extremely strong and his hotel’s occupancy is running at about 90%, assuming you take out the current Coronavirus episode.

He was also well able to help with the logistics of how this would function.  The project needs to be considered by looking at the weakest link and addressing this.

This was the missing piece of the puzzle, which will take this investment to another level.  The aim was always to refinance, taking out most of the investors’ money and keep this as a cash generator.  This plan, if implemented and run correctly, would serve the investors very well.

If this works well it could serve as a model to replicate.

The problem with property is there is too much information available.  From a privacy point of view, whether some of the information should be made available publicly is actually questionable.

With this level of information anyone can work out whether a flat in a block of flats is a deal or not. It’s not rocket science.

When you’re purchasing a development deal, you can know what you hope to sell the flats for, and roughly the build costs.

Here’s where people who have their own build team can save the margin on the build.

The point being, with this level of information out for everyone to see, one needs to dig harder to find how to further enhance a deal.

Then you can develop an edge, otherwise you are simply playing with the same tools everyone else is.

Suresh Vagjiani

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