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 for
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
 Background
 Loan Purpose
 Facility Details
 Funds Position
 Servicing Capacity
 Security
 Risk Assessment and Management (according to lender policy,
 guidelines and relevant legislation). Consideration must be given to any
 environmental, heritage or native title implications
 Recommendations
 Attachments
 Scenario

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 Bisset 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, Bisset’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.

Work History

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.

Financial Information

Last Financial year Bisset’s Real Estate Pty Ltd recorded the following financial results:

Gross Revenue $346,000

Net Profit $72,000
Depreciation $14,000
Directors Superannuation $11,000

In the previous financial year the partnership of Andrew Bisset and Joseph Hooper trading as
Bisset’s Real Estate recorded the following financial results:

Gross Revenue $422,000

Net Profit $84,000

Depreciation $16,000
Directors $11,000
Superannuation

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

Loan Interest $52,000
Management Fees $ 11,000 (paid to Bisset’s RE Pty Ltd)
Net Profit $50,000
Depreciation $25,000

Financial Position – Andrew and Jane

Bisset
ASSETS
$560,000
House at 12 Currumbin Close Carindale
QLD
Share Portfolio (Blues Chip Listed
$345,000
Shares)

Motor Vehicles $60,000

Furniture $85,000
Cash at Bank $45,000
LIABILITIES
$190,000
Home Loan with ABZ Bank

ABZ Bank Credit Card (Limit $20,000) $10,000

Financial Position of Bisset’s Real Estate Pty Ltd Assets
Business Goodwill $250,000
Plant & Equipment $35,000
Debtors $30,000
Liabilities

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

Vacant Land

 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

Tenant Rent Term Rent Review

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
Pty Ltd
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
Pty Ltd