Loan Security Valuation Flashcards
When would a property be marketable?
Can the lender recover its debt?
When will a lender not provide debt?
Due to properties history/design/condition/management
What are some finance options available for commercial property?
Commercial mortgages, property development finance, Portfolio finance, bridging finance, auction finance, mezzanine finance
What are Commercial mortgages?
Normally fund up to 75% of purchase over 30 years, affordability based on profitability.
What is Property development finance?
Short term loan used to develop new building project, terms up to 24 months, can do up to 70% of GDV.
What is Portfolio finance?
Long term business loan, to property investors with several rental properties, consolidate borrowing into one loan.
What is Bridging finance?
Short-term finance solution, favoured by investors and developers to quickly purchase a property seek exit at loan term.
What is Auction finance?
Experienced property developers and landlords, a way of arranging funding in advance of auction
What is Mezzanine finance?
Hybrid version of finance that combines elements of debt and equity investment, secured against the property. Helps developers reduce their cash flow requirement so they can finance projects normally requiring a larger capital share.
What do you need to comment on for a loan security valuation?
Loan to value – Loan/MV
Income risk – will the income stream service the loan?
Property risk – condition, capex required, environmental issues
Market risk – market fundamentals, liquidity etc
What does RICS Practice Informa: Risk, Liability, Insurance in Valuation 2021 state?
Liability caps = reduce PII premiums
What do you do differently for a loan security valuation?
- SWOT analysis
- Market commentary
- Suitability for loan security
- Additional reporting requirements (ESG & sustainability)
- CoI checks extend to 2 yrs
What analysis is required for a loan security valuation?
SWOT analysis
What is a key case law regarding LSV?
Titan v Colliers 2015 - overvalued property by not factoring in any downside risk (outside of tolerance margin), showed negligence
Why was the LTV considered appropriate?
What the current debt market says & market standards
