Loan Security Level 2

Question 1

What did you comment on the location for Loughboruogh?

Answer 1

• Deemed the site to be within a city centre location, albeit some distance from the university campus.
• This was in keeping with much of the private stock within Loughborough
• Close to city centre amenities

Question 2

Why did you deduce the income was secure in Loughborough?

Answer 2

• Secure income due to strong track record
• No wider influences that would impact the income during the loan terms
• limited pipeline
• No legislation to change in demand of students

Question 3

What was the LTV for Loughborough?

Answer 3

50% - in line with lenders appetite for risk

Question 4

What were the loan terms?

Answer 4

5 years with 2 -1 year extensions

Question 5

What were the strengths of Loughborough?

Answer 5

• Fully let
• Premium service offering and amenity
• High specification
• High ranked uni
• C3 residential consent to let to non-students

Question 6

What were the weaknesses of Loughborough?

Answer 6

• Unmet demand is relatively low
• strong HMO market in Loughborough
• converted office - less desirable than purpose built

Question 7

What were the opportunities of Loughborough?

Answer 7

Secure a nominations agreement

Question 8

What were the threats of loughborough?

Answer 8

• 608 - consented beds in pipeline
• premium offering may limit potential demand for the property (unlikely to impact marketability)

Question 9

For Loughborough - what did you advise on the marketability?

Answer 9

• We consider the market for the subject property is strong
• Likely timescales to exchange are 9-12 months.
• Potential purchasers may include private equity funds, PropCos and REITs such as Empiric.
• The small size of the asset may be less appealing to larger, institutional investors, but increase the appeal and affordability for high net-worth individuals and family offices.

Question 10

What was the MV and Yield for Loughborough?

Answer 10

£14,350,000
NIY: 6.50%

Question 11

What were the strengths of Exeter?

Answer 11

Modern PBSA completed for 2021/22
Fully let for last 3 academic years
Premium service offering
Extensive range of communal facilities
Strong macro location – Exter ranked 11th best University
Large student catchment, with 25,930 full time students studying at the University of Exeter
BREEAM excellent

Question 12

What were the weaknesses of Exeter?

Answer 12

Minimal economies of scale given that it is relatively small in PBSA terms
Non-prominent micro location

Question 13

What were the opportunities of Exeter?

Answer 13

Secure a nomination agreement
Reduce operational expenditure

Question 14

What were the threats of Exeter?

Answer 14

Increasing competition from emerging PBSA schemes, including some university operated stock

Question 15

How did you comment on the threats?

Answer 15

I noted that whilst this is a threat, it would unlikely impact the value due to the strong level of unmet demand in Exeter. As such, it would unlikely materially impact overall supply levels and subsequently rental growth prospects.’

Question 16

What was the market value of exeter?

Question 17

What was your caveat to risk?

Answer 17

The lender satisfies themselves that the loan to value ratio, borrower, debt structure, asset class, sector and tenant exposure is acceptable and in line with their business appetite and credit stewardship parameters

Question 18

What was the description of the building of Exeter?

Answer 18

Completed for 2021/22 academic year
Single block split over basement, ground and three split upper levels
Framed construction
Flat roof
Double glazed
Mixture of brick faced, rendered, slated and panel clad elevations

Question 19

What was the description of Loughborough?

Answer 19

2 adjoining buildings - Part 4, part 5 storeys
Framed constructions converted from offices
Conversion and extension completed in 2019
Double glazed windows
Metal sheet cladding on a portion of exterior walls

Question 20

What was the main DD of Loughborough?

Answer 20

Environmental
- low flood risk
- EPC (B)

Technical DD
- good repair
- Façade Fire risk assessment - low

Business rates
- PBSA exempt from business

Title and tenure
- FH
- clean and marketable

Planning
- not listed
- correct planning

Question 21

What was the main DD of Exeter?

Answer 21

Environmental
- low flood risk
- EPC (A)
- BREAM very good

Technical DD
- good repair
- Façade Fire risk assessment - low

Building Safety Act 2022
- Not a HRB

Business rates
- PBSA exempt from business

Title and tenure
- FH
- clean and marketable

Planning
- not listed
- correct planning

Question 22

What does clean and marketable mean?

Answer 22

a real estate title that is free of serious flaws and liens, and can be transferred to a buyer without dispute

Question 23

Why would a secure income stream and historic occupancy good for security of loan?

Answer 23

Emphasizes that the property would likely be able to pay the interest of the loan

Question 24

What are the 2 fundamentals that make a it suitable for loan security

Answer 24

1. The ability to get their money back i.e Capital value covers the loan
2. Needs to be let or good prospects of being let to generate income to service the interest of the loan
   (you might not have the interest amount, but you want to (as a valuer) see that the property is being let.

Question 25

Why is a high LTV concerning?

Answer 25

Because if you had to default on your loan and you needed to sell tomorrow ie in a distressed situation, you are probably not going to get the full value for it

Question 26

Why is a low LTV good?

Answer 26

Less risk for the lender

Question 27

Why do the banks lend money?

Answer 27

they want a return above the base rate

Question 28

So why is strong occupancy important?

Answer 28

Gives the bank reassurance that the property is likely to be let and thus will be able to service the debt for years going on