A RICS red book valuation 'shouldn't be the sole decision for lending' argues lender



In a recent webinar on life after Covid-19 hosted by Development Finance Today, Dan Smith, CEO at Fortwell Capital, claimed that lending entirely based on a red book valuation was not sensible.

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The point was made with regard to some lenders not proceeding with a loan if there was a Covid-19 -related material uncertainty clause in a valuation.

“Being a bit controversial here, I think if a lender — maybe a construction or higher leverage lender — [is] lending entirely based on a red book valuation, then that is probably not a sensible underwriting basis for them to be lending [on]. 

“These are used as guides to assist with the assessment of risk, and if a lender is experienced and here for the long term, then they will use that valuation to understand the risk, ratify the business plans of the developer and the borrower, and use it as a tool…”

“That shouldn’t be the sole decision for lending, in my view.

“Those lenders who come along without the necessary skills are potentially not great for the marketplace, because they can cause some problems.”

The webinar, ‘Life after Covid-19: Mobilising back to a new normal’, discussed the impact that the pandemic will have on supply chains, both in the UK and internationally, and whether it will change the way contractors source their materials and labour in the future.

Part two of the webinar can be viewed in full, below.

 
Part one of the webinar series can be viewed here.

Attendees considered what lenders’ processes will be like once developers can open their sites and are faced with revised predicted completion dates, and what clauses, legally, a finance provider could invoke on the client.

Arc & Co’s managing director of structured finance, Edward Horn-Smith, and director of structured finance, Matthew Yassin, was joined by Simon Collins, partner in the banking and finance team at Forsters LLP; Niccolò Barattieri, CEO at Northacre; Dan Smith, CEO at Fortwell Capital; and Michael Sharpe-Neal, divisional director in the valuation team at Savills.

Beth Fisher, editor at DFT, chaired the discussion.

The third and final part of the webinar will be published tomorrow on DFT.



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