Loan Security Level 2 Flashcards
What did you comment on the location for Loughboruogh?
- Deemed the site to be within a city centre location, albeit some distance from the university campus.
- This was in keeping with much of the private stock within Loughborough
- Close to city centre amenities
Why did you deduce the income was secure in Loughborough?
- Secure income due to strong track record
- No wider influences that would impact the income during the loan terms
- limited pipeline
- No legislation to change in demand of students
What was the LTV for Loughborough?
50% - in line with lenders appetite for risk
What were the loan terms?
5 years with 2 -1 year extensions
What were the strengths of Loughborough?
- Fully let
- Premium service offering and amenity
- High specification
- High ranked uni
- C3 residential consent to let to non-students
What were the weaknesses of Loughborough?
- Unmet demand is relatively low
- strong HMO market in Loughborough
- converted office - less desirable than purpose built
What were the opportunities of Loughborough?
Secure a nominations agreement
What were the threats of loughborough?
- 608 - consented beds in pipeline
- premium offering may limit potential demand for the property (unlikely to impact marketability)
For Loughborough - what did you advise on the marketability?
- We consider the market for the subject property is strong
- Likely timescales to exchange are 9-12 months.
- Potential purchasers may include private equity funds, PropCos and REITs such as Empiric.
- The small size of the asset may be less appealing to larger, institutional investors, but increase the appeal and affordability for high net-worth individuals and family offices.
What was the MV and Yield for Loughborough?
£14,350,000
NIY: 6.50%
What were the strengths of Exeter?
Modern PBSA completed for 2021/22
Fully let for last 3 academic years
Premium service offering
Extensive range of communal facilities
Strong macro location – Exter ranked 11th best University
Large student catchment, with 25,930 full time students studying at the University of Exeter
BREEAM excellent
What were the weaknesses of Exeter?
Minimal economies of scale given that it is relatively small in PBSA terms
Non-prominent micro location
What were the opportunities of Exeter?
Secure a nomination agreement
Reduce operational expenditure
What were the threats of Exeter?
Increasing competition from emerging PBSA schemes, including some university operated stock
How did you comment on the threats?
I noted that whilst this is a threat, it would unlikely impact the value due to the strong level of unmet demand in Exeter. As such, it would unlikely materially impact overall supply levels and subsequently rental growth prospects.’
What was the market value of exeter?
What was your caveat to risk?
The lender satisfies themselves that the loan to value ratio, borrower, debt structure, asset class, sector and tenant exposure is acceptable and in line with their business appetite and credit stewardship parameters
What was the description of the building of Exeter?
Completed for 2021/22 academic year
Single block split over basement, ground and three split upper levels
Framed construction
Flat roof
Double glazed
Mixture of brick faced, rendered, slated and panel clad elevations
What was the description of Loughborough?
2 adjoining buildings - Part 4, part 5 storeys
Framed constructions converted from offices
Conversion and extension completed in 2019
Double glazed windows
Metal sheet cladding on a portion of exterior walls
What was the main DD of Loughborough?
Environmental
- low flood risk
- EPC (B)
Technical DD
- good repair
- Façade Fire risk assessment - low
Business rates
- PBSA exempt from business
Title and tenure
- FH
- clean and marketable
Planning
- not listed
- correct planning
What was the main DD of Exeter?
Environmental
- low flood risk
- EPC (A)
- BREAM very good
Technical DD
- good repair
- Façade Fire risk assessment - low
Building Safety Act 2022
- Not a HRB
Business rates
- PBSA exempt from business
Title and tenure
- FH
- clean and marketable
Planning
- not listed
- correct planning
What does clean and marketable mean?
a real estate title that is free of serious flaws and liens, and can be transferred to a buyer without dispute
Why would a secure income stream and historic occupancy good for security of loan?
Emphasizes that the property would likely be able to pay the interest of the loan
What are the 2 fundamentals that make a it suitable for loan security
- The ability to get their money back i.e Capital value covers the loan
- Needs to be let or good prospects of being let to generate income to service the interest of the loan
(you might not have the interest amount, but you want to (as a valuer) see that the property is being let.
Why is a high LTV concerning?
Because if you had to default on your loan and you needed to sell tomorrow ie in a distressed situation, you are probably not going to get the full value for it
Why is a low LTV good?
Less risk for the lender
Why do the banks lend money?
they want a return above the base rate
So why is strong occupancy important?
Gives the bank reassurance that the property is likely to be let and thus will be able to service the debt for years going on
