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

Florêncio Lutemberg () and Tavares de Alencar Claudio ()
Additional contact information
Florêncio Lutemberg: Real Estate Research Group University of São Paulo – São Paulo – Brazil
Tavares de Alencar Claudio: Real Estate Research Group University of São Paulo – São Paulo – Brazil

Real Estate Management and Valuation, 2020, vol. 28, issue 3, 1-11

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.

Keywords: Valuation; Commercial property; Loan guarantee; Loan to value; Income approach; Value at risk (search for similar items in EconPapers)
JEL-codes: C15 C51 D46 D81 O22 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/remav-2020-0019 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:vrs:remava:v:28:y:2020:i:3:p:1-11:n:1

DOI: 10.1515/remav-2020-0019

Access Statistics for this article

Real Estate Management and Valuation is currently edited by Sabina Zrobek

More articles in Real Estate Management and Valuation from Sciendo
Bibliographic data for series maintained by Peter Golla ().