Graham + Sibbald Quarterly Report Q1 2018

As this is the first Graham + Sibbald quarterly report that we have produced it would be prudent to look backwards before discussing the last quarter in more detail. Market conditions have been changing with increasing pace in the past few years. The much discussed “credit crunch” still looms over decision makers, which is for the good and long may it continue, but as transactional volumes increase and therefore confidence grows we are seeing financial institutions reviewing the hierarchy of evidence they are willing to consider in making a lending decision to support a property transaction.

Between 2008/09 and 2017 it was very difficult for the Hotel and Leisure market to raise funds for a property transaction mainly because goodwill and trade fixtures, fittings, furnishings and equipment (moveables or F&F) make up anything up to 40% of the Market Value of the business. The main financial institutions were not willing to risk lending against such a volatile and intangible asset, regardless of what the Market wanted. The Valuers, such as Graham + Sibbald, were being asked to ignore the facts that the business was open, the trading history, the inventories, liquor licenses (please see my follow up piece on the Value of a Licence), and asked what discount needed to be applied to sell the business in a short and restricted marketing campaign. The loan was then assessed against this restricted and arguably unrealistic value, which should never be allowed to occur, when all parties act reasonably. However the banks were only willing to take the risk against the worst possible situation they could imagine.

Thankfully this seems to have now passed, if the borrow has the experience or skills to the run the business. It would seem that since the latter half of 2017 our Valuation team have seen an increasing number of lenders ask sensible questions when considering Valuations to support property transactions. For example we have seen instructions asking us to consider Market Value as well as Closed Value with special assumptions, and we have been asked to discuss the differences between Existing Turnover and Profits against our opinions of the Fair Maintainable Operating Profit and Fair Maintainable Operating Profit.  If banks are now factoring in whether or not the business is being run efficiently, to its maximum or is there over (or under) performance in the unit, then in my humble opinion they are asking the right questions again and factoring in the right levels of risk into their lending decisions. 

We understand from our discussions with the main lending institutions that some of them are now looking at the cash surplus in the business, the skills and experience of the borrower, the stability of the trade, the loan to EBITDA ratio, before they look at the loan to value ratio.

This increased support will no doubt help increase the number of property transactions in 2018.  Especially as we are seeing an increase in the number of well performing businesses on the open market. These businesses are generating cash and vendors have been reluctant to expose them to market whilst lenders would not support the acquisition of the business by a new operator, as buyers did not have 40-60% of the value of the business in cash. 

Although there are wider risks to the stability of the market such as the difficulty larger groups have exposed themselves to with their rapid expansion in recent years, market conditions are currently very strong and we are seeing increased activity across the whole of Scotland. 

Quarter 1 in 2018 saw a lot of transactions complete which had been ongoing throughout 2017, including The Caledonian Hotel in Edinburgh for a record breaking £85m, Starwood purchased 7 Hilton Hotels including the Grosvenor in Edinburgh for £135m, which continues the flow of overseas money into the larger hotel sector. We saw the sale of La Belle Angele in Edinburgh complete for an undisclosed sum, as well as several smaller transactions across central Scotland. Graham + Sibbald have also seen the value of the assets under offer increase significantly in the first quarter of this year. 

For a copy of our market report please email me at

We will produce a similar set of statistics after the next quarter. However if you have any queries or questions please do not hesitate to get in touch on 0141 332 1194


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