Loan Security Valuation (submission) Flashcards
What does Lloyds/Handlesbanken agreements say?
o Be able to compare a service level agreement / standard terms of business with a lender with VPS1. Lenders usually require above and beyond. o Nearly always a service level agreement, didn’t need altering for this job – that’s all I need to know. Perhaps look at the agreement though.
What is the minimum borrowing amount Lloyds offers, term length range, LTV max, interest rate arrangements/incentives, and are they open to other terms?
o Apply for a minimum of £25,001 and choose a term loan from 3 to 25 years. o Borrow up to 70% of the property value. o Choose between fixed or variable interest rates to suit your business needs. o Capital repayment holidays may be available. o If you wish to borrow on other terms, we may still be able to help you
What assessment do Lloyds require on the borrower as a matter of course, and what 6 other bits of information may they also ask the borrower to provide?
o All lending is subject to a satisfactory credit assessment and we will need your permission to carry out a credit check on you and your business. We may ask you to provide: A profile of your business, including the experience, expertise and track record of its owner and/or management team. Cashflow forecast, usually covering the term of the borrowing. Details of your business assets and liabilities, including any additional income from other sources. Management accounts. Details of assets you have available for security, including the estimated value of your business (we require professional valuations in some instances). Any other borrowing commitments you have.
Does Lloyds have an auditing scheme?
o We regularly receive audits of our reports to ensure Lloyds are receiving the valuation standard of service they require. Any more?
Talk me though the TOE you agreed for Fulwell.
- Discussed requirements with client as part of initial scoping exercise, - Provided quote on that basis, - Received quote approval - As have service level agreement in place, issued Appointment Letter accepting instruction in line with client requirements, after checking the pre-agreed Service Level Agreement terms were applicable to the current instruction. - Agreed liability cap at 20% of our Market Value figure (-+10% for commercial negligence claims) - Signed/countersigned 3 years post MRICS experience - Bases of value: o MV o MV VP o MR o Indicative reinstatement (inc. prof. fees and site clearance costs) for insurance purposes - The SLA agreement has the following terms, which I judged were fair for the instruction, and which I mirrored within the report- o Addressed solely to Client (not borrower or others) o Restriction on publication/liability o Solely for purposes of this particular lending instruction o Confirmed PII limit of £5m in place. o As a default position, the terms of engagement should limit reliance only to the addressee, who should be the named lender. They should also state as default that any third-party reliance is specifically excluded. o For valuations undertaken in the UK, it is strongly recommended that any loan security report is addressed only to the named lender, and not to a broker or potential borrower
What valuation bases did you use for Fulwell and why?
- Market Rent – lender required as part of loan cashflow modelling. Also necessary to provide opinion of MV, and MV VP. - Market Value – for current prospects of investment. - Market Value on the special assumption of vacant possession – for modelling ‘worst case’ scenario for lenders purposes.
Why did you adopt a special assumption (Fulwell)?
- This was necessitated by lender in SL agreement. I recognise that lender’s require VP special assumption for the own internal loan underwriting risk and cashflow analysis
What due diligence enquiries did you make with the lender (Fulwell)?
o Asked whether a recent transaction or provisionally agreed price – nothing agreed as of yet o Asked about terms of lending facility being contemplated – nothing agreed as of yet (the lender typically does not provide, their approach is bespoke etc.)
What were the lenders additional requirements (Fulwell)?
What were the lease terms for Fulwell, and what did you include in the report to comply with lender requirements?
- The lender had provided the following lease information from the borrower, and in line with the lender’s reporting requirements I summarised the terms, appended the lease summary to the report, and confirmed the terms with the solicitor by provision of the draft valuation report: - Let to 5 tenants, producing total gross rental income of 113,530 p.a., WAULT to break of 2.73 years. - All EFRI terms with landlord recovering expenditure by way of service charge. - All local businesses, ground floor service led retailers primarily (children’s play café, opticians, hairdressers), alongside furniture sales business occupying double unit – highest risk in current market. - First floor wholly let to gym – also local – unusually roof is entirely the responsibility of 1st floor tenant, lease is subject to schedule of condition. - Unit B let on 20 year lease – FRI – local restaurant. - Provided covenant analysis – advised market would view all tenants as weak covenants based on Experian credit risk score (VERIFY ON EGI WHAT STATUS IS). - Rack rented. - Appendix 6 – included tenancy schedule. - Upcoming rent reviews for 1 in c. 6 months, 2 in c. 1 year – albeit rack rented so not any reversionary potential at valuation date – therefore could use NIY. - Qualified alteration, alienation and user clauses - Service charge – all tenants required to contribute fair proportion of repair costs.
What were the tenure terms (Fulwell)?
- Lender provided 2 reports on title from solicitors: o Held freehold and held long leasehold – could just one report on title – freehold. o No onerous terms/restrictions found, but advised solicitor should confirm.
What was the location of Fulwell/how did you judge it?
- Fulwell, Sunderland – relatively affluent suburb of Sunderland, 2 miles north of city centre, 100m west of junction that splits this area of Sea Road from the main thoroughfare, with western end of Sea Road the most prime part of street – number of national and regional businesses represented including Greggs, Coral Bookmakers, Lloyds Pharmacy, Hunters Estate Agents, Hayes Travel – typical range of suburban national retailers, eateries, pharmacy, estate agents. - Although subject scheme is close to prime area, the junction splits it off, immediate area more isolated, mixed-use – with surrounding users either local businesses benefitting from limited footfall around Seaburn Metro Station, 200m to east, or businesses that benefit from good parking provision that this area of street can provide – Sainsbury’s supermarket. Also a vacant working men’s club and fire station – showing potential risks to space that does not adapt to either of these purposes, given limited footfall in immediate area – occupiers need to be a destination people travel to (Sainsbury’s).
What was the age/construction/specification of Fulwell? How did you measure the property/what was size?
- Detached 2 storey building dating from 1960s of 15,930 sq ft NIA total, ground floor comprises 4 retail units, 1 a double (middle) and first floor comprises a gym. - Concrete framed construction, brick elevations, concrete floors, shallow pitched profile metal cladding sheet roof, metal frame glazed shop fronts, double glazed PVC windows to first floor. - Ground floor units have rear ancillary WC and tea room. - All retail units of similar internal standard – tiled suspended ceiling with LED panel lighting, wall mounted electric heating. - First floor – lower quality internally, open plan, with two changing rooms and WC areas. - Carpeted floors, tiled in bathrooms, continuous DGPVC along north/south elevations, plastered/painted ceilings – ceiling mounted fluorescent strips, gas fired boiler for heating and hot water. - Externally – tarmac surfaced car park around building perimeter, spaces to all four sides, 40 in total, fully circular access, with access from both south east/west corners. - Ground floor retail units between 700-900 sq ft ZA, other than double unit (2,304 sq ft ZA), first floor effectively office space (?), therefore not zoned – 7,865 sq ft - Rectangular site – 0.6 acres, 40% site coverage, good for property of this type, all used for car parking presently. - Electric, water, drainage and gas supplies, albeit capped off in retail units.
What was the condition of Fulwell, and what did you advise the client therefore?
- Generally reasonable state of repair, but advised client that given building age (50 years) would require ongoing maintenance going forward. Also noted the following: o Tarmac surface in poor condition – number of substantial potholes. o Double glazed FF windows at least 20 years old, almost all have heavy condensation between glass, indicating seal failure o Raises question why car park in poor condition – likely down to poor management or a dispute with tenants who are collectively refusing to contribute. o Upper glazing tenants responsibility – full replacement likely to be considerable expense – raised concerns that tenant would be willing or able to do – even though 5 years remaining on lease – recommend borrower starts planning for a solution soon – and you consider this expense within your underwriting cashflow analysis – perhaps (?) get a building surveyor to provide specialist advice on matter to quantify issue better o We have taken issues into account in valuation (overall property condition) but advise you consider in your underwriting analysis.
(Fulwell) What statutory enquiries did you make/required by lender?
- EPCs all D or better, approx. 5 years remaining average – advised no risk reflected in valuations at present. - Flood risk – very low risk - Asbestos register stated no asbestos located in building. - Historic maps indicated built on previously greenfield land, no history of mining activity. - Planning – made enquiries with Sunderland City Council, Core Strategy Plan adopted 2020 allocated as a main retailing centre. Reported majority of retail and leisure uses do not have any planning history, however café permitted A1 to A3 use change in 2017, therefore assumed for purposes of valuation all uses were permitted. - Rating – total RV of 102,850, reported all above 15,000 so no rates relief at present, but all SBR. - Adopted road - H&S, Fire Safety, EA compliance assumed, not provided with documents though (OK?, how do I deal with this question?)
(Fulwell) what did the retail evidence show? And what additional advice did you provide the lender on that basis (marketing etc.)?
o Recent lettings on prime west end of Sea Road ranged between (net effective) 23 psf for a double unit (lease renewal) to 30 ZA for 5-7 year FRI leases, most with breaks in 3-5 years, similar terms to subject block – the norm for this market, but more footfall. o Recent lettings of poorer pitch Sea Road units around 24 psf, lease renewal. o No letting evidence on poorer pitch Station Road section to east of subject o Provided commentary/rationale to lender: Last letting in subject property – Unit 1 May 2017, 5 years, break year 2, 20 psf ZA, all units in block let between 19.50 – 20 ZA. The higher rates on Sea Road reflected the higher footfall in that location. Explained in form of market commentary that although Sunderland is a secondary city, Fulwell is one of most affluent suburbs, some of highest house prices in city, Sea Road main retailing thoroughfare. Because of this, and confirmed by our on-site inspection, vacancy rates are quite low, as retail markets for affluent residential suburbs have generally remained resilient: • Footfall has generally remained higher than in larger cities, as people have been working from home – local retail services have been preferred because of this, and retailers that can meet community needs generally fare well (i.e. groceries, professional customer facing services, hot food takeaways, pharmacies, hairdressers, cafes etc.) – and this situation has generally remained unchanged – albeit the obvious risk for all non-essential retailers has been forced closure, and for essential retailers reduced footfall. Vacancy rates do however increase further from the prime section as footfall drops – the subject parade benefits from a similar amount of passing trade than these units, but in our opinion the prospects are better as the subject parade benefits from unique large dedicated on-site car parking, which will help it remain competitive with the more prime service led retailers (rather than retailers selling physical goods) that perform consistently well in locations like this. Based on all the above I advised my client the retail units were therefore rack rented (MAKE A COMMENT ABOUT LEASE TERMS THIS BASED ON? SAY FOR NOW – recommended that would expect 5 years, 3 months rent free, year 3 break to let in this location). Advised 9 month void period based on market analysis (provided evidence in comparable schedule of vacant period length) + 3 months rent free, therefore total 12 month void period.
(Fulwell) what did the gym evidence show? And what additional advice did you provide the lender on that basis (marketing etc.)?
Difficult to source – focused on recent evidence from similar quality relatively affluent suburbs across Tyneside – (Whitley Bay mainly) – 5-10 year FRI leases between 2.75 to 4 psf – with lower rates achieved for larger spaces like subject (5000 sq ft) – therefore advised subject premises rack rented at 2.75 psf. Advised that similar 12 month void period and same terms – 5 years, 3 months RF, year 3 break. Similar advice – although a leisure user – this large open plan space with good parking provision is well suited to a gym user – offering a community service.
(Fulwell) what did you decide the rental position of the property was overall?
- Decided property was rack rented overall – 111,030 p.a.
(Fulwell) investment evidence – NIY range? Market commentary advice to lender re. investment prospects? Final valuation figures (2 approaches used)?
- Searched regionally for recent suburban multi-let retail parade investments of similar lot sizes. - NIY ranged between 7.73% for 3 unit early 1900s terrace at prime area of Sea Road (let to 2 low risk national covenants / 1 local), rack rented, 3.7 year WAULT to break - To 9.35% for early 1900s 4 unit terrace with Snooker Centre above (similar size) in superior but secondary pitch in Whitley Bay, but no dedicated parking (let to all local covenants), rack rented, but 2 tenants holding over, reflected in shorter 1.93 year WAULT to break. - I reiterated my market commentary advice to client in rental analysis – although wider high street market struggling, and especially major city retail in current COVID market conditions, there remains healthy occupier demand for space that is suitable for service led businesses and local newsagents/food retailers – both of whom would seek strong dedicated car parking provision like the subject and ability to benefit from passing trade from more prime thoroughfare in more resilient affluent suburban locations. - Additionally these parades are typically of a lot size attractive to local private investors and property companies – we advised that investor demand should remain healthy for investments like this – they serve the local communities needs, and although they are typically not let to low risk covenants, the multi-let nature and competitive rents that can be offered helps spread and reduce the investment risk, subject to ensuring the investment is asset managed well. - Do I NEED TO HAVE INDIVIDUAL RETAIL INVESTMENT EVIDENCE? SEE CARY’S’ CASE STUDY - OTHERWISE SAY AS FOLLOWS: - Applied yields ranging between 8%-8.5% to retailers (lower for optician as slightly lower risk covenant that other local occupiers) and 10.5% to gym as riskier – then applied expiry voids of 12 months incorp. incentives (no BR holding costs applied as COVID had just started?, 15% MR? or not at all?) deduced SDLT and purchasers costs at 6.5% (I guess, full amount given value, could use PropYield) – MV of 1.16m, capitalised at NIY of 9.25% given: o WAULT of 2.73 years o Advised Whitley Bay 9.35% NIY best evidence (1.93 year WAULT), subject slightly longer WAULT, similar local covenants, but Whitley superior pitch, albeit no dedicated parking.
(Fulwell) what did you advise the client re. loan suitability, and what did you state in the SWOT?
o Not provided with any specific loan details, but in general terms we consider the property to comprise a saleable asset that could be sold in a reasonable timeframe, unlikely to present a refinancing risk at valuation date, but we anticipate any advance only being for an appropriate proportion of our opinion of MV. However advised there were some risks to income – active management is key to mitigating these, advised in SWOT analysis: Strengths: • Fulwell good residential area with well used shopping facilities • Property has good on-site parking provision. • Full occupied and rack rented Weaknesses: • 1960s block with some maintenance issues to be addressed • Mainly quite short unexpired terms to 9-10 Station Road • Let to mainly weak covenants Opportunities: • Renew leases as and when they fall due • The largest unit could suit a convenience store or be split back into two units if it were to fall vacant Threats: • If repair issues (mainly the poor condition of the car park surface) are not addressed it could make tenants and rental levels more difficult to retain/maintain. o Client also required Asset Quality: Secondary (within national context).
(Fulwell) what advice did you give to lender re. uncertainty?
- Report issued on 24 March 2020 – included material uncertainty clause – COVID outbreak 11 March 2020 - Advised client that market activity impacted in many sectors, less weight to previous market evidence, however it is too early for any new transactional evidence to emerge. - Advised that values may have fallen – but there is no evidence currently available to make a judgement. - Therefore, advised client that given less certainty, recommend you keep valuation under frequent review going forward. - As we were not given specific loan terms, and as the lender is ultimately the decider of whether to go ahead with a loan, we did not provide any financial advice re. the cover ratio, but instead advised the client to consider the current market uncertainty in their loan underwriting process, and the effect this could have on the cover ratio going forward – the retail market is likely to decline, but it is too early to provide any quantative advice as to how much. - We also therefore recommended the lender to keep the valuation under frequent review, and to request a revaluation at a later date, in order to monitor the impact of the pandemic on the investment, given the currently challenging retail market conditions.
(Blaydon) describe the property, spec, location/surrounding users, size, yard use/size.
• Multi-let terrace of industrial units set within a secure yard compound. • 7 workshops dating from 1960s – eaves height 2.82m, steel frame construction, pitched sandwich construction roof • Blaydon Haughs industrial estate – secondary/tertiary location on banks of river tyne, surrounding users predominantly scrap/metal works, waste transfer premises with large external processing/storage yards – generally very dirty uses, therefore subject commensurate with that. • Total GIA 22,000 sq ft • Yard currently used for scrap car storage of 0.37 acres – part tarmac covered, part loose gravel, secured with metal palisade fencing.
(Blaydon) what report did you obtain, why, what did it state and what did you advice client upon inspection?
• Obtained Groundsure Screening Report in accordance with SL agreement – lender needed it for all industrial valuations – stated moderate but acceptable – but I advised client that my on site inspection – observed large amounts of oil leaking from scrapped vehicles.
(Blaydon) how did you value/what did comps show/ what was MV, and what did you advise/subject to what?
• Sold with vacant possession – comparable evidence between 20 – 60 psf, all VP sales of similar size/spec on Blaydon Haugh industrial estate. • Unit 2 Storey Court best comp at 26 psf, however subject in inferior dated condition – decided 15 psf for building, and 25,000 for yard space (70,000 per acre, based on comparable evidence of similar land sales on Blaydon Haughs and other similar estates/similar dirty users). • MV therefore 350,000, advised client that we have assumed extent of contamination is acceptable given this was common for a location of this type – however advised that I could revise valuation subject to a Chartered Environmental Surveyor carrying out further investigations and reporting on that basis (MORE TO ADD, CAN DO LATER IF HAVE TIME, TALK TO KATE). • Advised client that valuation was on basis property remained in current industrial use – i.e. if it was going to altered or redeveloped in any way the Local Authority would likely require decontamination works to take place…
What is a Groundsure Screening Report/what does it include?
…
(OPTO) what were the properties spec/location/development amenities/size?
• 4 studio apartments within a PBSA scheme nearing completion in Newcastle city centre. • Situated on OPTO development on eastern fringes of Newcastle city centre in Shieldfield – somewhat isolated fronting on to main road, 10 minutes walk from Northumbria, 20 minutes from Newcastle. • High specification based on developer’s prospectus provided (IF HAVE TIME HAVE A LOOK AT WHAT THIS WAS AGAIN) • Development will include communal facilities including a gym, study/meeting room, cinema room, laundry facilities, games room and roof garden. • All 200 sq ft – calculated from plans.
(OPTO) what were the tenure terms?
• Tenure: to be held long leasehold: o Landlord – City Road Student Halls Limited o Tenant – Mewstone Ridges Ltd o 250 years o Ground rent: 350 p.a. o Tenant responsible for rates payment. o Upwards only RRs, RPI basis 3 yearly o IRI o Alterations – consent required, no qualification for reasonable. o User – consent required, no qualification for reasonable. o Service charge: tenant is to pay a % (not quantified) of the total service costs incurred in operating and maintaining the building – including repairs, maintenance, payment of outgoings, employment of staff, management costs, insurance. WHAT WAS THE APPORTIONMENT BASIS?
(OPTO) what were the tenancy terms?
o Leased back to developer by way of a 5 year underlease from completion, at rent of 8% of premium in headlease, being 6,460 p.a. based on the stated premium of 80,750 p.a. o Lease silent on payment of outgoings (including utilities) – we assumed therefore that the tenant as an occupier is responsible. o Silent on repairs – therefore assumed tenant has no liability. o Silent on alterations/alienation – assume no restrictions. o During initial 5 year period tenant (developer) will cover any service charge, ground rent and utilities – meaning that 6,460 is the net figure received by the borrower for these 5 years.
(OPTO) what is Newcastle student market like/what has development activity been like?
o Two universities – large student population that has risen from c. 25,000 to 45,000 today. o Newcastle now has highest rate of student housing in England – 1 in every 15 homes – 10x higher than national average o Development activity: Spread over many parts of city centre, eastern side (including Shieldfield) leading the way, as this area provides good access to Northumbria Uni. More recent development has spread to more central locations and around St James Boulevard, which give better access to Newcastle Uni. Particularly large number of completions 2015-2017, but fewer since as developers sense possibility of market becoming saturated. Subject lies furthest to the south-east of any such development- leaving it more vulnerable than most if an oversupply situation was to occur in rental market.
(OPTO) what rental evidence did you use/how did you analyse it (in line with lender reqs), and what did it range between PW?
o All on all-inclusive basis, focused on nearby schemes in Shieldfield. o Provided a detailed analysis of each comparable block to the lender, in line with requirements: o Distance from subject/location analysis and date of construction o Fixture and fitting analysis o Facilities included i.e. laundry, cinema room, games room, outside space o Identified studios of a similar size in competing schemes, and provided an analysis of why differences between achieved rents, which ranged between 130-160 per week over 51 week tenancy.
(OPTO) what 2 schemes did you consider for the capital valuation/when built/what return/psf range, and in Burgess House what did resales indicate re. gross – net rents?
o Two other schemes in city centre sold off in similar manner as small individual investments with a guaranteed income for an initial period: o Vita Westgate House: o 2016 built, very central location – 5 years with 7% return. o Sold out in 5 months, with prices in range of 379 to 406 psf. o Burgess House, St James Boulevard: o Basic, modern internally, similar quality location to subject. o Sold between 60,000 to 65,000 2015 o Many now on market for re-sale, none have resold outside the initial rental premium period. o Gross rents on ones for sale ranged between 5,500 to 7,200 p.a. – with service charge, ground rent and letting/management fees published. After deducting these figures net rent was 2,700 to 4,400 p.a.
(OPTO) valuation commentary- What was ground rent basis? What difficulties did you highlight, and what figure did you advise for the SC cost/based on what evidence? What figures did you report for utilities and letting/management/repair costs, and based on what? What was therefore the net rent (assuming borrower takes back ownership at 5 year lease end)? What did we instead state the NMR was, and why?
• Ground rent: 350 currently, 3 yearly RPI linked reviews (advised client not particularly onerous) o Highlighted difficulty in estimating annual service charge cost and highlighted our strong reliance on figures from comparable schemes, which may not reflect what the subject landlord would seek to charge- o Burgess: between 2,000 – 2,500 p.a. o All Saints House, Sunderland: between 1,900 – 2,000 p.a. o Therefore advised client figure was 2,250 for valuation • In addition, needed to report on utilities and letting/management/repair costs, which I consulted with my management colleagues who have previous experience in these areas: o Utilities 500 o L/M/R at 10% of gross rent – 800 p.a. • Amounts to 4,000 p.a. • Advised client that initial Market (gross) rent of 6,460 p.a. would be unsustainable beyond year 5 of lease. • At lease end, tenant will have option of walking away or renewing the lease at a lower rent – if cannot make a profit they will walk away. • We anticipate that tenant would approach renewal at gross MR – letting/mgmt costs/utilities and a margin for profit/void risk (estimated 600) = rent of 6,244 p.a. • Quite close to rent on initial 5 year underlease, but tenant no longer paying ground rent and service charge. These costs fall on borrower and take the net income from Year 5 onwards to around 3,644 p.a. • Borrower could instead take back apartments and let directly to student/professional tenant without developer acting as intermediary – resulting in the slightly higher figure of 4,000 stated earlier (as not paying intermediaries profit) – however we expect a typical investor would not want the ‘hassle factor’, and would not benefit from the developers economy of scale, and would therefore take the lower rent. • Therefore Net Market Rent of 3,650. • Advised client that our income assumptions reflected initial yield of 8% and reversionary yield of 4.51%. • However also qualified that if units are being sold at proposed price level (80k) – then arguably that is MV – however highlighted that MV definition includes ‘that the parties have acted knowledgably’ – advised that an investor with a full understanding of these figures would not buy apartments at that price.
(OPTO) how did you value the flats, based on what, and what was therefore the Market Value?
• Investment method – 6% yield into perpetuity to our opinion of long term sustainable investment income (based on sale in nearby Burgess post lease period), and applied 8% yield to ‘froth’ (2,800) for first 5 years – producing figure of 72,000 x 4 = 288,000
(OPTO) what did you advise re. current demand?
• Tenant demand for studio apartments strong currently, high-end particularly in demand from international students. • Attractive to small-scale private investors due to affordable lot size
(OPTO) why above average uncertainty (evidence/market stuff)/what did sensitivity analysis show?
• Above average valuation uncertainty: • Sensitivity analysis: • 10% increase in GMR would increase MV to 325,000 • 10% decrease in GM would decrease MV to 251,000 • However, advised that rental evidence in this sector is not as transparent as sales evidence, and we have been unable to establish occupancy levels in competing schemes. Therefore greater than average uncertainty. • Current Brexit negotiations – deal or no deal could potentially disrupt property markets and economy. More directly, it could have an impact on intake of EU students, which could more directly affect subject investment viability. • Although PBSA market nationally is doing well, as there is overall still increasing demand that supply cannot keep up with, resulting in good yields for investors seeking a secure return, local market conditions can have an impact on this. • Market could be over-saturated: Newcastle is a ‘mature market’, and rental growth has now slowed/flatlined. By saturation I mean in a more localized way – new development has to compete with other schemes, so more poorly located stock may struggle in future. As it stands Newcastle has the highest rate of student housing in entire country – 1 in 15 homes. If the market was to decline or students became less interested in the higher rents asked for in PBSA (v HMOs) then it could result in significant vacancies or sudden sharp drops in achievable rents.
Talk me through a loan security valuation you have carried out.
Use standard RB checklist, but just need to add in a little more about lender’s specific requirements, suitability for loan security, and drafting TOE (liability caps etc.).
How have you incorporated lender’s specific requirements into a valuation?
Talk through Sea Road Fulwell - - SWOT analysis - particularly strong investor demand for rack rented multi-let retail investments - advice on particular cashflow risks (service led local businesses, degrading car park condition presented a significant risk to the future occupancy and rental prospects, 2.73 year WAULT to break, evaluate if borrower able to undertake necessary asset management)
What factors have you come across that affect the ability to obtain finance?
Say Blaydon - GSR + site inspection - large amounts of oil leaking from scrapped vehicles - appeared to be higher risk than moderate/acceptable. Advised that MV takes into account this risk - surrounding comparable sales evidence also has similar contamination risk, therefore taken into account in figure, assuming property remained in current use (i.e. not redeveloped). Lender decided to not proceed with facility - as per the SLA I put forward potential risk, and following their internal procedures they decided to pull out.
(Blaydon) What is a GSR, and what does Moderate but Acceptable Risk mean?
Screening covers contaminated land, flood, ground stability, radon and energy risks. Each report is written and reviewed by our in-house team of environmental consultants who can be contacted in the event of a query.
Groundsure is the preferred supplier to the UK commercial property secured lending market. Screening has been developed in conjunction with leading UK banks and meets lending security compliance.
2.5 Environmental Screening Reports
Environmental Screening Reports (ESRs) can be prepared by chartered environmental surveyors and typically include a risk classification in the context of the occupier’s proposed or continued use of the premises.
They should be used to underpin the value attributed to the property. These are normally commissioned when any property is acquired or to be sold, for example:
- for any pension fund • for private investment
- for capital market clients
- as part of a portfolio and
- as part of asset management.
The ESR is designed to address the requirements of the Red Book, notably at VPGA 2 and 8.
The risk assessment should incorporate the issues that may impact the use and value of the property. In determining a risk rating, which is a subjective summary of risk, the ESR has to consider a hierarchy of risks. For example, whether the risk is low, medium or high level.
The purpose of risk ranking is to consider the impact of the risk applicable to that asset. This risk classification is designed to consider the environmental risk to the future owner or occupier in the context of the existing use, where no alternative use strategy is proposed (see table 1).
