The owner of a shopping center turned to a commercial bank for the purpose of refinancing the existing loan with another bank, the subject of which was a pledge of the shopping center.
The pledge department of the bank, in which the owner was planning to refinance, questioned the market value of the shopping center as a potential subject of pledge under the loan agreement.
The process of negotiating the size and conditions of the loan slowed down due to different results of the evaluation of the shopping center by the owner and the bank’s specialists.
The bank’s specialists were concerned with the cost of the shopping center as a potential collateral, because under the previous loan agreement with another bank, the collateral value was significantly lower than the current value of the facility, according to the owner, based on the assessment of the CG experts.
During the negotiations with the specialists of the bank's pledge department, the CG experts managed to dispel doubts, since the previous assessment at another bank was made at the time of the 1-st year of operation of the shopping center, which did not reach its full capacity in terms of financial flows.
At the time of the assessment by the CG experts, the shopping center had almost a full load at market rates and long-term lease agreements, which led to an increase in the cost relative to the previous assessment.
The bank accepted the position of the CG experts, and the loan agreement was signed on the conditions that fully satisfied the owner of the shopping center.
In the process of negotiating the conditions of the loan agreement the bank is guided by the desire to reduce the risks of losses in the sale of the collateral in the case of foreclosure on it.
From this perspective, the bank benefits the lowest value of the collateral in the framework of the loan agreement.
The owner, in most cases, benefits in the opposite situation - the maximum collateral value of the property.
A fair and reasonable assessment of the property, which does not raise issues with the bank, allows to balance the interests of all parties - the owner and the financial institution.