Risk Assessment And Management
Overview: The purpose of this task is to allow you to demonstrate that you can complete the major steps required in broking or writing a moderately complex loan or a customer – through identification, development and implementation of loan options while assessing and managing risks. The samples in Appendix A may prove helpful. Remember that what you prepare will need to be presented to the client orally and thus must be understood by them.
Instructions: Read the scenario provided and using the information and data supplied, prepare a formal loan submission for a lender using the following headings. Use subheadings where appropriate to ensure your submission will be easily read and understood by the lender.The client file should contain the standard client information and data that would be included in a typical submission for a loan of this complexity. Your lender submission should include as a minimum the following headings:
- Borrower’s Details
- Loan Purpose
- Facility Details
- Funds Position
- Servicing Capacity
- Risk Assessment and Management (according to lender policy,
- guidelines and relevant legislation). Consideration must be given to any
- environmental, heritage or native title implications
Andrew Bisset has been a real estate agent for over 20 years and jointly with his wife Jane own 6 shops at 55 Park Road, Belmont. Mr and Mrs Bis set own the shopping centre under the Bisset Family Trust. The property was valued 2 years ago at $1,450,000 and has a current ABZ Bank Mortgage of $625,000. Five of the shops are rented out for $96,000. The sixth shop is occupied by Mr Bisset’s real estate business, Basset’s Real Estate Pty Ltd, which pays annual rental of $42,000 to the family trust. For tax purposes Bisset’s Real Estate pays rent which is $20,000 in excess of the fair market rental value of the shop it occupies.
Bisset’s Real Estate Pty Ltd was formed at the beginning of the last financial year to take over the real estate agency business, which was previously conducted by a partnership between Mr Bisset and Joseph Hooper. Bisset’s Real Estate Pty Ltd took over the business when Mr Hooper retired.
Mr and Mrs Bisset now wish to acquire 3,000m2 of land near their existing shopping centre and hold it for 1 – 2 years pending rezoning.. The purchase price is $600,000. The land was previously used as a State Government Health and Dental Centre, but the building was demolished when it became obsolete. The land is currently zoned ‘Special Purpose’, but the local council earmarked the land for future ‘Commercial’ use in it recently released Town Planning Scheme. The land is located at 423 Belmont Road, Belmont and has a two street frontage with considerable passing traffic.
The Bisset’s have contracted to purchase the property in their capacity as trustees of their family trust and settlement is due with 60 days. They wish to raise 100% of the purchase price plus $ 25,000 for stamp duty, financing and conveyancing costs. They are willing to offer both the land and their existing shopping centre as security for the proposed loan. They will contribute a further $20,000 over the next 1?2 years to cover the costs associated with re?zoning of the property and obtaining approval to develop another shopping centre.
Unfortunately ABZ Bank policy does not allow them to lend against land zoned ‘Special Purpose’ and cannot assist with the purchase. The Bisset’s have appointed you to approach an alternative lender to refinance their ABZ Bank Loan and obtain the additional funds required.Assume an interest rate of 7% for a commercial loan, 9% for an overdraft.
Andrew has been a real estate agent for 22 years in the Brisbane South East area, he specialises in commercial and industrial property (rent roll comprises 75% commercial and industrial properties). His gross salary last financial year was $78,000. In the previous financial year he drew $55,000 from the partnership with Joseph Hooper.
Jane has worked as the property manager since Bisset’s Real Estate Pty Ltd took over the agency after the partnership. Her salary last financial year was $43,000. She did not work in the previous financial year.
Last Financial year Bisset’s Real Estate Pty Ltd recorded the following financial results:
In the previous financial year the partnership of Andrew Bisset and Joseph Hooper trading as Bisset’s Real Estate recorded the following financial results:
Risk Assessment And Management
The Bisset Family Trust purchased the shopping centre at Park Road Belmont 18 months ago and its financial statements for the past financial year are as follows:
|Gross Rental Income||$138,000|
|Management Fees||$ 11,000 (paid to Bisset’s RE Pty Ltd)|
|Financial Position – Andrew and Jane|
|House at 12 Currumbin Close Carindale|
|Share Portfolio (Blues Chip Listed||$345,000|
|Cash at Bank||$45,000|
|Home Loan with ABZ Bank|
|ABZ Bank Credit Card (Limit $20,000)||$10,000|
|Financial Position of Bisset’s Real Estate Pty Ltd Assets|
|Plant & Equipment||$35,000|
ABZ Bank Overdraft (limit $40,000 secured by $25,000 residence)
(Keep in mind that, in the absence of actual tax returns which would confirm the income distribution of the trust, any profit would be distributed and taxed in the hands of the beneficiaries. For the purposes of this assignment, assume company tax of 30%, even though in “real life” of course you cannot assume and the distributions would be clear in “real life” financials.) Property being purchased
- 423 Belmont Road, Belmont QLD 4171
- Lot 84 on RP 9564 Zoning “Special Purpose” Area 3000m2 Existing Property
- Shopping Centre
- 55 Park Road, Belmont QLD 4171
- Lot 43 on RP 9542 Zoning “Commercial” Area 1850m2 Tenancies
|J & R Blend||$22,000 pa net||3 + 3 years||Annually by CPI|
|T/A Blend News|
|Copelin Accounting||$18,000 pa net||1+ 1 +1 years||Annually by CPI|
|R Spragos||$28,000 pa net||5 + 5 years||Annually by CPI|
|T/A Roger’s Deli|
|Vu Nguyen||$20,000 pa net||3 + 3 years||Annually by CPI|
|T/A Care Pharmacy|
|M Goodson||$8,000 pa net||3 + 3 years||Annually by CPI|
|T/A Good Alterations|
|Bisset’s Real Estate||$42,000 pa net||3 + 3 years||Annually by CPI|