In-depth valuation of commercial and investment properties

Beyond fundamental metrics, such as property type, year of construction, built area, and Gross Leasable Area (GLA), an in-depth technical valuation considers specific attributes that can enhance or penalize the asset's value.

In the local market, these are the key differentiators:

• Layout and functionality: Optimized spaces that allow for flexibility of use, especially in Multifamily models where efficiency per square meter is vital.

• Balconies and private outdoor areas: An element that has become non-negotiable in the premium residential and corporate segments post-pandemic.

• Condition and renovations: This evaluates the updated status of finishes and, most importantly, the plumbing and electrical networks.

• Sustainability and Climate Control: In warm-climate cities, efficient air conditioning systems are critical; generally, having EDGE or LEED certifications adds a premium to the sale value.

• Heritage Restrictions: The level of architectural conservation (Assets of Cultural Interest - BIC, for its acronym in Spanish) can be an aesthetic value, but also a development constraint that must be rigorously evaluated.

• Technical Specifications: The presence of high-speed elevators, full-backup power generators, water reserve tanks, and visitor parking.

• Income Stability: In investment assets, full occupancy and the quality of active leases (WALT - Weighted Average Lease Term) are factors that ensure the asset's liquidity.

To define the true commercial value of your building or multifamily asset, it is essential to integrate the most recent comparable transactions into the analysis. These benchmarks allow us to identify the pricing drivers and the value per square meter at which similar assets are currently trading.

In this analysis, we evaluate critical criteria such as:

• Strategic location: Not only the sector, but also access to amenities, transportation, and the neighborhood's projected appreciation.

• Asset condition: State of preservation, modernization of common areas, and compliance with technical standards.

• Closing dynamics: We differentiate between the 'list price' and actual market closing prices, providing a solid foundation to recommend a justified and competitive asking price.

This data-driven approach enables your property to not only compete but to stand out, ensuring efficient commercialization that is aligned with the expectations of both institutional and private investors.

The chosen methodology depends on the asset type and its economic purpose. For standard investment assets, such as offices, warehouses, or retail spaces, the Income Approach (Income Capitalization Method) is the primary tool. In this case, current and projected rental income serves as the baseline metric to determine value.

For complex investments, multifamily assets, or negotiations with institutional and international investors, the global standard is the Discounted Cash Flow (DCF) method. This analysis allows for the projection of long-term profitability by considering variables such as inflation, projected vacancy, and the exit Cap Rate (Capitalization Rate).

At Engel & Völkers Commercial, we apply the methodology that best suits the nature of your asset, ensuring an accurate, reliable valuation that is, above all, aligned with the realities of the Colombian real estate market.

Commercial real estate valuation demands a level of technical analysis that goes far beyond market comparables. To determine a realistic value in Colombia's current environment, it is essential to consider:

• Potential for alternative use: We evaluate whether the property has higher profitability under a use different from its current one (for example, converting an office into a multifamily asset or a warehouse into a last-mile distribution center), as permitted by the POT (Territorial Planning Plan).

• Detailed analysis of lease agreements: We analyze not only the current rent but also the tenant's strength, the WALT (Weighted Average Lease Term), escalation clauses (CPI or additional points), and vacancy risk.

• Urban and technical regulations: It is vital to audit compliance with current urban regulations, pending development levies, and the asset's technical specifications (electrical capacity, floor load capacity, fire protection systems).

• Tax and macroeconomic framework: We integrate the impact of local taxes (Property Tax, Industry and Commerce Tax - ICA) and the Banco de la República's interest rate projections, which directly influence the applied discount rates.

Due to these variables, commercial valuation requires consultants with deep financial insight and real "on-the-ground" market knowledge. At Engel & Völkers Commercial, we combine technical rigor with real transaction data to provide you with a valuation you can trust.

Understanding these two tools will allow you to make the right decision according to your needs, whether they are commercial, accounting, or legal.

1. Strategic Commercial Valuation It is a market tool designed for agile decision-making. At Engel & Völkers Commercial, we perform this valuation to define a strategic baseline for sale or lease.

• Purpose: To establish a competitive and realistic asking price.

• Approach: It is based on current supply and demand dynamics, absorption trends, and recent transactions in the sector.

• Use: Ideal for property owners looking to go to market or investors evaluating the feasibility of a purchase.

2. Technical and Legal Appraisal It is a detailed and formal report that determines the fair value of an asset, prepared by an appraiser registered in the RAI (Registro Abierto de Avaluadores / Open Register of Appraisers) and in accordance with the regulations of Law 1673 of 2013.

• Purpose: To comply with legal, financial, or tax requirements before third parties.

• Standards: It is governed by the NTS (Technical Valuation Standards) and International Valuation Standards (IVS), complying with the requirements for financial reporting under IFRS.

• Use: It is mandatory for procedures with banking institutions (mortgage loans or leasing), legal proceedings, estate successions, requirements before the DIAN (National Tax Authority), or for updating assets on a company's balance sheets.

The expected return on a commercial property in Colombia depends directly on a matrix of technical variables. There is no single "one-size-fits-all" figure, as returns fluctuate significantly depending on the chosen strategy:

Factors that define your return:

• Asset Type: The warehouse (logistics) and multifamily segments typically offer different profitability dynamics compared to offices or retail spaces.

• Location and Stratum: Projected appreciation in urban renewal zones versus the stability of consolidated neighborhoods influences the final cash flow.

• Tenant Profile: The tenant's creditworthiness (multinationals vs. local companies) directly impacts the discount rate applied to the asset.

• Property Quality: Assets with sustainability certifications (LEED/EDGE) tend to retain their value better and attract higher rental rates.

Investment Strategies in Colombia:

• Core Assets (Stabilized): For those seeking low risk and steady cash flows. They usually have full occupancy with long-term leases, offering a more conservative yet secure Cap Rate.

• Value-Add Investments: Assets with improvement potential (remodeling, change of use, or vacancy management) that promise higher returns in exchange for active management and a higher risk profile.

At Engel & Völkers Commercial, we don't just give you a number; we conduct a 360° analysis to align return expectations with your risk profile and wealth objectives.

In the Colombian context, taxes define the actual profit of a sale. A professional valuation not only determines the market price but also serves as the foundation for strategic tax planning.

Key tax factors in valuation:

• Capital Gains Tax (Ganancia Ocasional): If the property has been part of the seller's equity for more than two years, the profit from the sale is subject to this tax, which for 2026 remains at 15%. A technical valuation helps to substantiate the disposal value in the face of potential audits.

• Ordinary Income vs. Fixed Assets: For companies holding properties as operating assets, valuation makes it possible to identify the difference between the tax cost and the commercial value, optimizing profit management and the impact on the balance sheet.

• Tax Cost Adjustments: Colombian law allows for various methods to update the tax cost of properties (such as the use of cadastral appraisals or authorized annual increments). Strategic valuation helps decide which method legally minimizes the taxable base.

• Registry Tax and Notary Fees: Although these are closing costs rather than income taxes, their calculation is based on the transaction value defined in the valuation, which directly impacts the deal's cash flow.

Transaction Structuring:

Depending on the valuation and the client's objectives, the deal can be structured through the direct sale of the asset, the assignment of fiduciary rights, or a Share Deal (sale of shares), each with distinct tax implications.