Long-term Value Methodologies and Real Estate Lending

The report, Long-term Value Methodologies and Real Estate Lending, published on 30 June 2017, outlines work undertaken in pursuance of Recommendation 4 (Use of long-term value measures for risk management) in the 2014 paper, A Vision for Real Estate Finance in the UK.

The Long-term Value Working Group (a sub-group of the Property Industry Alliance Debt Group) assessed the ability of three alternative methodologies (Adjusted Market Value, Investment Value and Mortgage Lending Value) to provide advance signals on when the commercial real estate (CRE) market may be overvalued and face a high risk of a major fall in values. The main conclusion of the research is that estimates of long-term valuations can provide useful advance signals of this.

Long-Term Value Methodologies & Real Estate Lending

Further work is planned to complete the analysis of the different approaches and look at how they might best be used to inform decision-making by lending institutions and regulators. The Long-term Value Working Group would welcome feedback on the current findings and suggestions as to what should be considered in the next stage of the research. Please contact Peter Cosmetatos: pcosmetatos@crefceurope.org, by no later than 15 September 2017 with your comments.