Given the will, there's a way

For all the talk of constipated banks unwilling to lend money, plenty of freehold pubs are changing hands.

The lending that is taking place from banks is now requiring a substantial slug of equity from licensees, often around 40% to 50% of the asking price. Tight controls on lending have an upside for buyers — it is a major deflater of asking prices in itself.

Let's not forget that it was the willingness of banks to lend at very high loan-to-value ratios that was a major accelerator of price inflation, leading to unsustainable values and unserviceable levels of debts.

It's no coincidence that just about every tenanted pub company that bought large numbers of pubs in the heady days of 2004 to 2007 has now collapsed — nearly all of these deals were over-leveraged. Of the new reality, one financier told me this week: "Cash isn't king, it's God." Those with cash savings, able to borrow cash from friends and family, or able to source an equity investor, are in the box seat.

As it happens, leaseholders with good quality pub businesses have been in a better position to buy their freeholds than many might have thought. First of all, there's been a wide range of willing sellers — not least of all Punch, Enterprise Inns and Mitchells & Butlers. Sources indicate dealing with the large pub companies has its quirks with the occasional unfathomable valuation.

But for Punch and Enterprise, selling pubs has been an unemotional exercise with, on the whole, pretty realistic valuations on the sites in the departure lounge. Private freehold landlords are proving a little more unpredictable. Some are happy to collect the cash to pay down their own debts and move on to the next project, others have been coming up with wildly unrealistic prices.

This week, Jon and Paul Briscoe have been successful in buying the two freeholds they tenant from Mitchells & Butlers. The couple, like a number of others, have benefited from the support of an eagle-eyed finance house. In their case, it's Downing Corporate Finance that has come up with the readies.

Downing is no charitable foundation — it sees that pub prices are depressed and thinks that sitting leaseholders are a comparative low risk. It is also seeking a low-teens return on its money at the end of a five-year investment thanks to an anticipated slice of the freehold upside.

Like most things in life, there's an upside and downside to this route. One upside is lessees like the Briscoes are not having to find any new money to do the deal. The deal is propelled by the enhanced property value created by the marriage of the freehold and their lease. The downside centres on the investor looking for bigger returns than a bank would.

But it's still a great example of finding a way when there's a will.