<abstract xmlns="http://www.w3.org/1999/xhtml">The valuation of commercial properties for the guarantee of loans is extremely relevant for financial institutions, since it directly impacts the calculation of the loan to value ratio (LTV). However, despite the vast literature on the subject, the choice of methodological basis and the definition of the type of value to be employed are not pacified issues among researchers and practitioners. In this sense, the main objective of this paper is to present a methodological approach, as well as a suggestion of the type of value for the valuation of commercial properties bound collateral.The main methods and types of values related to the valuation of bound collateral commercial properties are presented below. Next, we propose a refinement of the income method, based on the concept of the value of the investment opportunity and under the principle of value at risk. Finally, we promote a case study with data from the Brazilian market to illustrate the application of the proposed approach.Based on the case study, it was evidenced that the valuation approach proposed in this paper, anchored in the potential of the income generation of the property, reduces the risk of exposure to banks’ credit.</abstract>

The valuation of commercial properties for the guarantee of loans is extremely relevant for financial institutions, since it directly impacts the calculation of the loan to value ratio (LTV). However, despite the vast literature on the subject, the choice of methodological basis and the definition of the type of value to be employed are not pacified issues among researchers and practitioners. In this sense, the main objective of this paper is to present a methodological approach, as well as a suggestion of the type of value for the valuation of commercial properties bound collateral.The main methods and types of values related to the valuation of bound collateral commercial properties are presented below. Next, we propose a refinement of the income method, based on the concept of the value of the investment opportunity and under the principle of value at risk. Finally, we promote a case study with data from the Brazilian market to illustrate the application of the proposed approach.Based on the case study, it was evidenced that the valuation approach proposed in this paper, anchored in the potential of the income generation of the property, reduces the risk of exposure to banks’ credit.

Protected Collateral Value: An Approach to Valuation of Commercial Properties for Loan Guarantees

Real Estate Research Group University of São Paulo

Real Estate Management and Valuation

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

The valuation of commercial properties for the guarantee of loans is extremely relevant for financial institutions, since it directly impacts the calculation...

Protected Collateral Value: An Approach to Valuation of Commercial Properties for Loan Guarantees

Published Online: Aug 17, 2020

Page range: 1 - 11

DOI: https://doi.org/10.1515/remav-2020-0019

Keywords
Valuation, Commercial property, Loan guarantee, Loan to value, Income approach, Value at risk

© 2020 Lutemberg Florêncio et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Protected Collateral Value: An Approach to Valuation of Commercial Properties for Loan Guarantees

Published Online: Aug 17, 2020

Page range: 1 - 11

DOI: https://doi.org/10.1515/remav-2020-0019

KeywordsValuation, Commercial property, Loan guarantee, Loan to value, Income approach, Value at risk

© 2020 Lutemberg Florêncio et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Keywords
Valuation, Commercial property, Loan guarantee, Loan to value, Income approach, Value at risk