Loan security Flashcards
Global standards - list them
PS, VPS and VPGA’s
VPGA 2 - Loan security - twhat does it include?
dealing with conflicts of interests - any previous involvement with the borrower must be disclosed to the lender.
previous involvement can be within the past 2 years.
What are the report procedures for loan security valuations?
comment whether the property is suitable for loan security or not.
comment on the environmental consideration
disclose any previous involvement in the TOE
any circumstances which may affect the valuation need to be mentioned
where value is arrived at with the use of special assumptions, then a comment needs to be included on the value with and without that special assumption.
What are the risks to lenders?
borrower defaults
property is no longer income producing
sudden decline in the asset value
What are the risks to valuers?
potential miss valuation of the wrong figure
Need to check this with paul
What are the reasons for loan security valuations?
re-financing
application for a new loan
release equity?
What is a special assumption?
something that is not true but it is assumed to be true in the report
What is an assumption?
something that could be true and you assume it in the report. Most common one is market value on the assumption of vacant possession.
Talk me through your valuation in Soho
- carried out a COI
- comps search
- bases of value were MR, MV and MV+VP
- investment method
- looked at VP sales with regards to capital value rates
- applied a weaker yield due to short WAULT and poor covenant strength
What is the typical loan to value raio?
50-60%
How do you calculate the WAULT?
WAULT is calculated using the straight line method. Calculate the unexpired lease terms on each of the leases up to the break or expiry. Then analyse the passing rents of of each of the tenants and apply a weighting depending on their unexpired lease term.
Talk me through your loan security valuation in Peckham
- carried out a COI check
- adopted the investment method
- extended my search to look for comps further afield, such as rents slightly further away
- provided my opinion of MV for the property
- also provided my opinion of VP value too.
What did you include in your SWOT analysis?
Strengths - fully let and income producing
- security of income
Weaknesses - not long left on the lease
Opportunities - potential to re-let the property at a new rent
threats - sudden downturn in the business performance
- sudden downturn in the market
Why would a lender request a VP value
sometimes lenders make the borrower draw down on their loan (pay some up front) depending on the VP value reported.
Also if a property is repossessed, the lender will look at your VP value
What is the difference between Gross profit and net profit?
Revenue - costs of sales = Gross profit.
Gross profit - operating expenses = operating profit
Operating profit - taxes = net profit.
