30 November 2001

Type of business key to extra value of diversification

By Catherine Paice

WHETHER diversification adds to the value of a holding depends considerably on the type of alternative business offered, says Mark McAndrew of Strutt & Parker.

Three estates, of which two have been sold, illustrate the different approaches taken by buyers, he says.

On about 1800 acres near Tenterden, Kent, the Morghew Estate had diversified into a wide range of activities including wild boar, crayfish, a farm shop and Countryside Stewardship Scheme.

"In marketing the estate, we found that none of these added value," Mr McAndrew told farmers weekly.

Wild boar and crayfish held limited appeal for potential buyers, he said. Even the considerable investment in fencing, for example, apparently failed to add value. "They are labour intensive activities, but not overly profitable," he said.

The farm shop was relatively isolated and mainly limited to produce from the estate.

"Countryside Stewardship tends to meet with mixed feelings," said Mr McAndrew. "Buyers can be wary of it. Fulfilling the requirements of the scheme can be quite onerous, and the buyer inherits it. You also need to make sure the vendor has fully complied with those requirements."

Ultimately, a £6m price tag on the estate was unaffected by any of these activities. "In the event, the buyer was entrepreneurial and they may have helped attract interest, but they did not add value," said the agent.

Cane End, with 1100 acres near Reading, sold with a £7.5m guide price. Diversification included 15 acres of vines and a wine shop which also sold wine-related accessories.

"We do not believe this added value either," said Mr McAndrew. "There was little interest in keeping the wine side going, and the cost of removing the vines could even be a deterrent."

But buildings let for commercial uses did add value. A rent roll of £20,000 a year clearly added to the price of the farm.

Similarly, at the Wishanger Estate in Surrey, which is still on the market, a small vineyard has effectively been disregarded in the valuation, but buildings generating over £80,000 a year have been taken into account.

Substantial lakes let for fishing also produce some income that is worth capitalising, said Mr McAndrew.

"Where you are making a clear profit, I think you can definitely attribute value," he said. "Holiday lettings, for example, also potentially add value, and there are certainly people looking for all sorts of investment of this type." &#42