With stocks up, prices down and an increasing number of disgruntled employees on the lookout for reasonably priced businesses to run, deal activity in the hospitality space is set to soar in 2012. Elly Earls finds out if now really is the right time to take the plunge and fork out on that dream property
You’re probably thinking you’ve heard it all before: this year is going to be the year of opportunity. Now is the time to buy. Just like it was last year. And the year before. You also might recall that, despite an impressive stock of properties on the market, that didn’t quite materialise in 2010, or 2011. So, why should 2012 be any different, particularly given today’s tough funding environment?
There are several very good reasons. On top of the ever-increasing stock of hospitality businesses for sale, sellers have finally begun to price their properties at a level that is acceptable to the growing number of cash-strapped lifestyle purchasers that have begun to take the hospitality market by storm.
“The difference between the start of 2011 and the start of 2012 is that the stock is going to be sensibly priced,” Jeremy Hill, head of hotels at Christie & Co, confirms. “There is now an opportunity for people to buy at sensible cap rates and know that in two or three years’ time, they bought at the right time in the market. As long as the debt markets come back to even a reasonable level, 2012 will see the biggest deal activity of the last couple of years.”
For Simon Chaplin, head of restaurants at Christie & Co, it’s a similar story in the restaurant space. “If you’re looking to enter the industry now, there are some good sites available and landlords are getting a lot more realistic,” he says. “Buyers are in quite a powerful position; the premiums on sites that are suitable for owner-occupiers have come down a lot from where they were five years ago.”
But it’s the pub market that first-time buyers should perhaps be considering the most seriously. “It’s a fantastic, cheap way of getting into the trade,” Simon Hall, head of pubs at Fleurets, notes. “There are very few other businesses that can hand so much on a plate to you for so little; you can have a roof, a business and jobs for your family, which can then be used as a stepping stone to something else.”
It’s important to remember, however, that the pub market is extremely diverse. While the top and bottom ends of the market are extremely active moving into 2012, the middle market, made up largely of private operators running successful businesses who are under little pressure to sell, is quite the opposite. According to Hall, when it comes to bottom-end freeholds in particular, now is without doubt a good time to buy.
“There have been an amazing amount of deals going on in that part of the pub sector, driven by pub companies selling off the bottom ends of their estates as their more marginal operations become unviable,” he explains.
However, the outlook isn’t all rosy for potential first-time pub buyers. Although values are down about 40% from where they were at the beginning of 2007, and buyers are therefore getting more bang for their buck, they also need to put in much more of their own money to get a property mortgage. “If you have cash, you have the opportunity to get some great bargains, but if you have to rely on bank funding, it’s extremely difficult and you’ll often get overlooked or beaten to the punch by someone with funds,” Hall remarks. “Pub company disposals, of which there are several thousand per year, are invariably not being funded through banks because they don’t have proven accounts.”
Banks are being very cautious about lending money to people who haven’t had previous experience in owning and operating hotels, according to Hill. He adds: “Generally we’ve found this year that most of the people buying hotels haven’t been new entrants to the market.”
Philip Gibson, partner at Edward Symmons, agrees. “We’ve seen a real lack of funding for property acquisitions in general, but particularly for people who are new into the sector – unless they have a chunk of the equity themselves.”
But Ewan Scobie, general manager of Scotland-based Bruce & Co, believes that the wider economic situation is forcing people to look more favourably at investment. “We’re seeing a good mix of new and experienced hotel purchasers,” he says. “There are a number of lifestyle purchasers coming on to the market; redundancy and various other things have forced them to reassess their personal circumstances and, with prices being subdued, they’re thinking ‘We could make this happen’. There are many good quality buyers who are able to make these transactions happen even against the backdrop of the funding issues that exist; that’s certainly keeping the market moving.”
Property agents across the hotel sector have seen similar trends, with Colliers International reporting evidence in its summer snapshot of new-to-the-trade buyers that industry entrants see the hotel trade as a viable means of escape from salary slavery. “We’re seeing an increase in people getting disillusioned with life in general and feeling that hotels give them the opportunity of looking after their own future,” Julian Troup, head of hotels at Colliers International, notes. “There’s a decent stock of hotels out there – we have 200 for sale at any one time – so it’s out there for people to go for.”
Of course, everything hinges on a particular buyer’s risk appetite and the type of operation they are interested in purchasing. But, whether it’s a bottom-end freehold pub, a high-end restaurant or a well-established hotel that’s your idea of a dream property, there’s little doubt that opportunity is rife as we move into 2012.
“Providing that a business is both well-performing and realistic in its price expectations, there will be strong interest,” Scobie concludes. “Despite difficult conditions, there’s no doubt that the market is strong.”
what to consider before you buy your dream property
Escaping the rat race to go it alone is an appealing option for an increasing number of Brits as 2012 gets underway. But running a hospitality business is no easy task. Here are just a few of the many factors prospective purchasers need to take into consideration before taking the plunge.
Narrow down the search
It’s crucial to narrow down the search to a specific area, or at least to determine the specifics of what is important to you. Property agents will then be able to guide you as to which areas and businesses will be the most suitable. Consider looking at businesses in national park areas as many Brits are increasingly “staycationing” for holidays.
Examine the possibilities
First thing’s first – you need to have a solid understanding of what you can afford. This will determine what type of opportunity to search for. Consulting a financial advisor or an accountant to help with this stage is absolutely essential as buyers often don’t take into account the total cost of running a hospitality business, including rates and service charges.
Assess the condition
Make sure you’ve looked carefully at the physical condition of the property before signing on the dotted line, particularly the heating and lighting systems. Other questions to ask about the internal space include: Is there development potential? Is there a smoking solution? Can you move the rooms around to increase the number of restaurant covers?
What is the potential
There are several external factors to think about: Are there good parking facilities? Are there any planned road closures? Are there any new commercial or residential development schemes in the area? Contact your local authority to find out.
Check out the competition
Don’t forget to suss out the competition. Is there likely to be a super-pub built near to your property in the near future? What are the strengths and weaknesses of the current competition? What does your property have to offer that gives it a competitive edge?
Spread the business
Try to seek out a property that offers a mix of business and isn’t reliant on one particular sector or large contract. Otherwise, you could be vulnerable if a particular contract came to an end. Ensure you have a decent spread of business from commercial and leisure guests; this will balance your risk.
a first-time buyer’s story
Lisa Griffiths and Liz Savage, both of whom have catering backgrounds, purchased Pine Lodge hotel in Mansfield in September 2011. “I wanted to have my own business, and decided on a hotel rather than a restaurant because restaurants can be quite up and down, whereas a hotel gives some stability,” says Griffiths. “I used to work at Pine Lodge when I was 16, it’s literally round the corner from where I live and I’ve always loved the hotel.”
The pair purchased the property through their pension and borrowed the rest of the money from the bank. “Because most of it was purchased through our pension, this reduced the risk to the bank,” Griffiths notes. “However, the process was very long-winded because lots of people were involved – we had a financial advisor who was getting our pension out of the council and we also had the bank that was looking after its own interests.”
Since closing the deal in September 2011, Griffiths and Savage have been busy refurbishing the property, something that was always on the cards. “We got it at a very, very reasonable price. It’s had nothing spent on it for a long time; it was like walking back into 1970!” Griffiths remarks. “We’ve already refurbished the restaurant and we’re now in the process of installing a new bar, seating area and toilets.”
five properties with potential
The Grampian hotel
Location Perth, Scotland
Why should you buy This 13-bedroom hotel, located in the capital of Perthshire, Scotland, is easily accessible by both road and rail and ideally placed to benefit from passing trade. It also has its own car park, a commodity in extremely short supply in the area.
Need to know Turnover to 31 May 2009 was £310,578, and although the hotel is trading extremely successfully, it still has the potential for expansion.
Agent Bruce and Co
The Horse & Jockey
Location Thurgoland, Sheffield
Price £215,000 plus VAT
Why you should buy This attractive, stone-built property, which benefits from an equipped catering kitchen, a car park and a grassed beer garden, is an ideal freehouse; it offers a home, a business and a way of life for less than a house would usually cost in the area.
Need to know There are no proven accounts, so funding opportunities are limited.
Agent Simon Hall at Fleurets
0113 234 0304
Why you should buy This high-quality, design-led country house hotel boasts 23 individually designed bedrooms, which are themed around the property’s previous textile mill heritage. The hotel has an impressive level of future bookings, with 100 weddings scheduled for 2012 and 25 for 2013. There is also planning permission to replace the existing marquee with a purpose-built function suite.
Need to know As the property is a popular wedding venue, buyers will need to have an understanding of the hotel trade, and functions in particular.
Agent Hugh Anderson at Edward Symmons 0161-216 3131
The Old Priory hotel
Location Midsomer Norton, near Bath
Why you should buy Reputed to be one of the oldest houses in Somerset, dating back to circa 1152, the Old Priory retains all of its original architectural features and provides guest accommodation in the form of six unique bedrooms. The venue gets more than 40% of its trade from the bedrooms and the dining room has limited opening hours, resulting in a great quality of life for its owners.
Need to know The Old Priory is very profitable; about £110,000 on a purchase price of £795,000, or only 7.2 times profit, including a house.
Agent Simon Wells at Colliers International
The Maypole Inn
Location Acton Bridge, Cheshire
Price £135,000 SAV
Why you should buy This Cheshire-based property has seen significant capital investment from its current owners and boasts a 60-seat dining room, a large bar lounge, a fully equipped kitchen, a car park with up to 60 spaces, a beer garden and a children’s outdoor activity area.
Need to know As the business is so well-established, it benefits from many regular patrons and also serves a large number of passers-by. The current owners are active in the business full time and are assisted by an experienced staff of 18, 15 on a part-time basis and three on 30-hour contracts.
Agent Knightsbridge Business Sales