Loan Security Valuations Flashcards
Things covered in VPGA 2
Dealing with conflicts of interest
Additional reporting requirements
Potential Special Assumptions
Dealing with conflict of interest
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
Additional minimum reporting requirements
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
Examples of special assumptions
Vacant possession
Restricted marketing period
Planning consent granted
New letting on given terms
Special purchaser
UK VPGA 10
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)
What is the difference between a normal conflict check and a loan security conflict checked?
Must disclose any previous involvement in the terms of engagement and report
Must check over last two years
Conflict check on borrower and property
Why do you do special assumption valuations in LSV reports?
Provides a lender with values for different scenarios – well informed and prepared
SWOT analysis
Strengths Weakness Opportunities Threats
Important thing to remember when undertaking a SWOT
Remain objective!
Get colleague to review to make sure objective
Advantages of SWOT
Simple framework to use/ understand
Facilitates understanding of S&W
Encourages strategic thinking
Flexible
Disadvantages of SWOT
Sometimes oversimplify- focus on key items
Pace of change makes it difficult to assess
Some data based on assumptions
Lander action points
Provides lender with succinct summary of items that need to be addressed/ confirmed
Example of LAPs
Site Area Tenure Tenancy info Fire risk assessment EPC Flood risk Refurb costs Floor areas
Sources of risk to lenders
Environmental Tenure Lease terms Covenant strength Market conditions
Debt finance
Borrowing money from bank
Must be paid back by an agreed date/ time
Interest accrued on loan
Equity finance
Selling of shares to raise capital
Always paid back last
Types of finance (ladder)
Senior debt
Mezzanine debt
Equity
Valuers role on loan security valuations
Provide lender with risk level of investment and certainty that lending will be secure
Outline strengths weaknesses and areas of concern
Loan to value ratio
50% to 60%
Dependent on current market situation
What do lenders usually look at?
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
Factors that affect ability to obtain finance
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
Negligence case law
Donoghue v Stevenson
Duty of care
Advantages of debt finance
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
Disadvantages of debt finance
Need regular income to pay regular instalments
Adverse impact on credit ratings
Potential bankruptcy of can’t pay
