Surveys, valuations and commercial lending during the lockdown
In the last week or so I have spoken to valuers and lenders about how to keep the wheels turning on secured lending transactions. They are dependent on a satisfactory valuation. Most property inspections are not possible at the moment, for example occupied residences. For some unoccupied developments or refurbishments awaiting their occupants or industrial / commercial premises where there is only a “light” presence some valuers are still able to inspect, taking appropriate precautions.
Steve Holland, Head of Professional Services at Innes England explains that, even if an inspection can take place, the resulting valuation report is most likely to be caveated in terms prescribed by the Royal Institution of Chartered Surveyors (RICS) and which (paraphrasing) stresses that times are very uncertain and so the valuation is not as reliable as it would otherwise have been.
Whilst understandable, this has caused significant difficulties for lenders’ credit committee’s decisions. A highly caveated valuation will be much harder to sue on should the worst case scenario happen and so many lenders are either withdrawing from or pausing deals.
Some lenders are actively seeking pragmatic solutions to these and other issues. With many inspections not possible, they are looking to advance a portion of the loan based on a desktop only valuation (holding back say a year’s capital and interest in a suitably ring-fenced account) and follow up with the rest when a normal inspection/report is forthcoming. It remains to be seen when the RICS lifts its edict to members to insert the caveats. In the meantime lenders may seek to hold back some of the loan money.
Steve Holland comments that there is a misconception that desktop reports are not RICS “red book” compliant. They can be, and this is of comfort to lenders in deciding to advance at least some of the loan to help keep things moving.
Where an adjustment to the lending deal is needed due to these valuation or other concerns, it is pleasing that some lender clients of ours have sought our help in agreeing the variations to keep the deals alive.
It is also heartening to see that some lenders and their customers are proceeding as planned with their loans unchanged. We are seeing that in various instances but especially in the health and care sector. Specialist valuers appear confident to stand by their pre-covid19 valuations of health and care properties: in the short term there is demand for rooms in care homes due to hospitals freeing up beds. In the primary care sector funding has been given a well-publicised boost and in the longer term the social and other dynamics in both health and care remain attractive to lenders.
Hopefully in all respects things can get back to normal soon.
If you would like to talk through the consequences for your business, call our Coronavirus Helpline on 0330 134 0199 for a free consultation (on appropriate commercial enquiries only) or e-mail us and one of our Helpline team will get in touch.
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