Loan Security Valuations Flashcards

1
Q

Things covered in VPGA 2

A

Dealing with conflicts of interest

Additional reporting requirements

Potential Special Assumptions

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2
Q

Dealing with conflict of interest

A

Any previous current or anticipated involvement with the borrower or property must be disclosed to the lender

Previous involvement – usually within last two years

Instruction must be declined if conflict cannot be managed

Valuer must be independent

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3
Q

Additional minimum reporting requirements

A

Disclosure of previous involvement

Valuation methodology adopted

Information concerning recent transaction of the property if been disclosed and relied upon as MV

Comment on environmental considerations

Comment on suitability for lending

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4
Q

Examples of special assumptions

A

Vacant possession

Restricted marketing period

Planning consent granted

New letting on given terms

Special purchaser

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5
Q

UK VPGA 10

A

UK specific guidance

  • panel agreements must be relevant to each instruction and regularly reviewed
  • reports must be solely addressed to the lender (no third party reliance unless stated)
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6
Q

What is the difference between a normal conflict check and a loan security conflict checked?

A

Must disclose any previous involvement in the terms of engagement and report

Must check over last two years

Conflict check on borrower and property

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7
Q

Why do you do special assumption valuations in LSV reports?

A

Provides a lender with values for different scenarios – well informed and prepared

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8
Q

SWOT analysis

A

Strengths Weakness Opportunities Threats

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9
Q

Important thing to remember when undertaking a SWOT

A

Remain objective!

Get colleague to review to make sure objective

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10
Q

Advantages of SWOT

A

Simple framework to use/ understand
Facilitates understanding of S&W
Encourages strategic thinking
Flexible

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11
Q

Disadvantages of SWOT

A

Sometimes oversimplify- focus on key items
Pace of change makes it difficult to assess
Some data based on assumptions

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12
Q

Lander action points

A

Provides lender with succinct summary of items that need to be addressed/ confirmed

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13
Q

Example of LAPs

A
Site Area
Tenure
Tenancy info
Fire risk assessment
EPC
Flood risk
Refurb costs
Floor areas
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14
Q

Sources of risk to lenders

A
Environmental
Tenure
Lease terms
Covenant strength
Market conditions
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15
Q

Debt finance

A

Borrowing money from bank

Must be paid back by an agreed date/ time

Interest accrued on loan

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16
Q

Equity finance

A

Selling of shares to raise capital

Always paid back last

17
Q

Types of finance (ladder)

A

Senior debt

Mezzanine debt

Equity

18
Q

Valuers role on loan security valuations

A

Provide lender with risk level of investment and certainty that lending will be secure

Outline strengths weaknesses and areas of concern

19
Q

Loan to value ratio

A

50% to 60%

Dependent on current market situation

20
Q

What do lenders usually look at?

A

Lend on MV subject to occupational lease
(Providing good covenant/ unexpired term/ good spec)

Use VP if lender is uncertain on covenant strength/ worried may default

21
Q

Factors that affect ability to obtain finance

A

Borrower has poor credit rating
Character of the market (Covid/ poor retail)
Proof that borrower can repay loan and interest and pay remaining purchase price capital

22
Q

Negligence case law

A

Donoghue v Stevenson

Duty of care

23
Q

Advantages of debt finance

A

Preserves companies ownership as not having to sell shares

Principal payment and interest expenses are fixed and known amount assuming that the loan is paid at a constant rate

24
Q

Disadvantages of debt finance

A

Need regular income to pay regular instalments

Adverse impact on credit ratings

Potential bankruptcy of can’t pay