The new Cayman Island-registered private equity fund focused on the nightclub sector plans to set up a series of identical nightclubs across the UK, and is looking to operate a dozen within six months, M&C Report has learnt.
EMCO Alternative Property Fund aims to buy the freeholds of troubled nightclubs and bars, which would be operated under a separate company called EMCO Leisure, or obtain change of use to convert them to residential premises, before a sale after a two-year period.
The fund has a target of securing at least six sites before starting to trade. Co-founder Emyr Hughes, 25, told M&C Report: “We would be looking to acquire them in December and early January, refurbish them and get them open by the Easter weekend."
The fund is targeting the whole of the UK but would look for “clusters” of sites located within one hour’s drive from each other. Areas being looked at initially include Devon and Cornwall, and Middlesbrough. London will not be a focus due to the high property values and more difficult planning barriers.
Hughes declined to reveal overall target numbers but said he was looking for about a dozen within six months. He said the fund has enough money to refurbish five sites per month. “We could scale that up or down. We could adapt to whatever comes our way.”
In terms of trading style, he said: “All the sites will be identical. All our venues will be uniform.” Hughes said he wanted to create the “McDonald’s effect on nightclubs”.
There would be a satellite link allowing customers at every venue to watch performances at one outlet, and there would be a focus on live music.
Hughes said he had a network of contacts looking for sites and has a retained agent, DE & J Levy. He said discussions are on-going with a number of operators and there are “a large number of distressed properties from one operator” in particular.
He declined to reveal how much is to be invested in the project, The Financial Times has reported that £5m per month is to be spent on buying up venues.
Hughes, who said he has a background operating licensed venues on behalf of mainly independent operators, founded the fund with Danny Brown, who has 25 years’ experience in property development including experience with entertainment venues.
Hughes said: “EMCO Alternative Property Fund provides an important opportunity for Danny and I to put our extensive skills and experience in property development and in the management and running of entertainment venues to work for the benefit of external investors.
“The portfolio of venues, each to be held over a two-year cycle will, operationally, benefit from efficiencies of scale due to a centralised management system being developed by the venue operator.
“We expect the fund’s investors to enjoy considerable opportunities for returns on the back of risk reduced by portfolio diversification and, moreover, by the presence of planning permission on each property. We see this as, potentially, a useful opportunity to achieve strong returns in a low interest rate environment.”
The fund said it is looking for sites that are:
* Freehold
* Frequently distressed – for example in want of refurbishment, running at a loss, having no operating licence and therefore buyable at a substantial discount to book value
* Likely to benefit from significant and immediate capital value increase on granting of an operating licence
* Likely to benefit from significant and immediate capital value increase on granting of change of use permission
* Capable of generating useful income as a venue based on adviser’s proprietary analytical model and considerable experience of running entertainment venues
* Susceptible to longer-term capital value increase arising from the operation of a successful and popular entertainment venue.
