From Market Value to Property Value: A New Approach to Real Estate Valuation

Background

The property under analysis is a prestigious mixed-use office and retail asset currently undergoing a major redevelopment program, with completion expected between 2026 and 2027.

The project is part of the broader European introduction of the Property Value concept, designed to complement traditional Market Value by providing a more prudent and sustainable assessment of long-term value, consistent with banking supervision principles.

However, the operational application of Property Value remains uneven across Europe. While countries such as Italy are progressively incorporating these guidelines into market practice, other jurisdictions have yet to adopt the framework or continue to apply it inconsistently.

Against this backdrop, the project pursued two objectives:

• Apply the Property Value concept through a structured methodology
• Translate its principles into a replicable operational model
• Clearly quantify the differential between Market Value and Property Value
• Strengthen the information base available to investors and lenders

Project

PRAXI’s engagement was structured across three phases.

In the first phase, the property’s Market Value was determined using standard valuation methodologies, establishing the baseline for the overall analysis.

In the second phase, the value was separated into land and building components. This distinction enabled differentiated adjustments aligned with the specific risk profiles affecting each component, in line with emerging European guidance.

In the third phase, a risk scoring system translated qualitative and quantitative factors into value adjustments, representing the core operational step of the Property Value methodology.

For the land component, the analysis assessed local real estate market cycles to identify potential expansion phases that may have generated asset overvaluation.

For the building component, four factors were evaluated:

• ESG characteristics, starting with the property’s energy performance
• Asset typology, fungibility, and long-term flexibility of use
• Ability to generate stable and sustainable income
• Alignment between asset characteristics and financing duration

Given the scale of the redevelopment project, the model also incorporated three additional risk dimensions:

• Urban planning and permitting risk
• Potential increases in construction costs
• Possible extensions to project timelines

Results

The project delivered a clear and transparent Property Value assessment aligned with evolving regulatory expectations. The final valuation was not derived from a discretionary reduction, but from a structured analytical process that explicitly identified risk factors and their relative impact.

In a European market where Property Value is still being progressively adopted, the project represents a concrete and structured application of the concept, helping bridge the gap between regulatory guidance and valuation practice.

The approach enabled the client to:

• Quantify and clearly communicate the differential between Market Value and Property Value
• Integrate factors affecting medium- to long-term value resilience, from energy performance to expected income stability
• Provide lenders with a more robust basis for creditworthiness assessment through prudent, transparent, and defensible documentation
• Develop a replicable model applicable across international markets with varying levels of framework maturity
• Address complex valuation scenarios where urban planning, construction, and timing variables intersect with real estate assessment

Future Outlook