What is the purpose of a loan security evaluation?
It establishes the MV of a property and assesses the lending risk, ensuring the loan amount is appropriate.
Who relies on these loan security valuations?
a Lender e.g. Bank
What are the different types of lenders?
- Bilateral Loan
- Syndicate Loan
What is a Bilateral Loan?
Direct Loan agreement between one borrower and one lender.
Often for smaller accounts or established banking relationships
Syndicate Loan
Loan provided by multiple lenders working together under a single facility agreement.
Typically led by an arranger/agent bank that coordinates the lending group.
Who decides if a loan goes through?
The bank or the lender makes the final decision
Regarding the supermarket in Kilburn, did you have sight of the loan amount?
I personally didn’t see the exact loan amount, but I was told by a director that it was around 60% LTV, which is market norm.
Why is it important to know the loan amount?
It is important so you can compare the loan to the property’s value and understand the context of the valuation.
In the example of the supermarket in north London, you advised that the property was suitable for a loan. Explain why.
The property was suitable because of its prominent London location, the stability of the supermarket industry, its position on a high street, and its strong tenant covenant. This was supported by a SWOT analysis and market commentary.
You valued a retail warehouse in Ipswich and undertook a vacant possession (VP) valuation even though the asset had an 8.1-year lease term. Why?
A VP valuation was done to understand the worst-case scenario for the bank, should the tenants suddenly go bankrupt and the property become vacant.
What were some special assumptions you made during this vacant possession valuation?
Assumed the tenant had vacated, no rent was being paid, and incorporated assumptions for rent-free periods, void periods, and a depreciated (higher) yield.
Can you talk me through your North London Supermarket Valuation?
- Competence, CoI, ToE
- MR and Cap Rate
- SWOT:
- Threat: Lidl opening up
- Opportunity: Increasing turnover
Can you talk me through the retail park in Cambridgeshire?
Determined MR and MV:
MR: 20psf
Cap Rate: 7% (inline with secondary yield)
SWOT Analysis:
Strengths:
- Recently built
- The asset is fully let.
- Primary convenience store in the residential catchment area, with limited competition.
- Limited competition
Weakness:
- Certain tenants had short lease terms
- Secondary location
Opportunities:
- Recent sales evidence strong investor demand for convenience sores and retail parades.
Threats:
- Broadly rack-rented income profile provides limited scope for rental growth outside of those leases with indexation.
Retail warehouse in Ipswich:
What was your advice?
- I advised them of why adopted my RF, void and discount rate
- I advised the property was suitable for Loan Security purposes, despite despite the secondary location, given a secured income stream of 8 years, with no vacancies and limited competition
What was the construction of the building?
concrete slab construction, with rendered brick and sleet elevations
Pitched roof
Yield / Rent for Ipswich?
What was the WAULT? you mention this
Passing rent: £8.50
Market rent: £9.00
EY: 8.00%
8.1 years WAULT
Retail warehouse in Ipswich:
SWOT
■ Freehold.
■ 100% occupancy.
■ Relatively long WAULT of 8.1 years to expiry.
■ Ample parking.
Weaknesses:
■ Secondary location.
■ Average strength covenants.
■ Short unexpired term of circa 1.5 years on Orwell Motorcycles, albeit they have been in occupation at the subject property since 2001.
Opportunities:
■ Secure a renewal with Orwell Motorcycles.
Threats:
■ Talks of competitor occupying space nearby
Retail warehouse in Ipswich:
Difference in value between MV and VP MV?
MV: £3.75m
VP MV: £2.8m
Difference: 25%
Supermarket Devon:
Tell me about your advice?
- Property was overrented: £30 vs £20
- Property was suitable for LS given the long term certain (12 years) and good location.
What yield did you apply?
6.5% EY
Supermarket, Devon:
SWOT
Strengths:
- Good location
- Site is enhanced by nearby big box/ bulky good retailers such as B&Q, Pets at Home & Dunelm.
- Supermarket competition is limited
- Unexpired term of 12 years
- Full let to good covenant
Weaknesses:
- Large format Sainsbury’s located within one mile of the subject property.
- Property overrented by 32%
- Rent reviews are 5 yearly instead of annual
- EPC C expirying next year jul-26
Opportunties:
- Top 10% story across their portfolio
- Property presents well to supermarket and retail warehouse operators
Threats:
Property in need of maintenance
What is a reinstatement cost assessment?
How much it would cost to rebuild your property
Can you walk me through a reinstatement cost process?
- Assess to construction cost psf on BCIS (regulated by the RICS)
- Identify the GIA of the building
- Get the GIA cost of building the property
- Subtract relevant costs:
- Professional fees (8%-12%)
- Demolition fees if needed (5%)
- General Costs (5%)
= Reinstatement cost
