Add Ground Lease Valuation Model (Updated Mar 2025).
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[ispot.tv](https://www.ispot.tv/browse)<br>The topic of has shown up a number of times in the past few weeks. Numerous A.CRE readers have emailed to [request](https://apnaplot.com) for a purpose-built Ground Lease Valuation Model. And I remain in the procedure of developing an [Advanced Concepts](https://venusapartments.eu) Module for our realty financial modeling [Accelerator program](https://bomja.ir) covering the mechanics of [modeling ground](https://www.horizonsrealtycr.com) leases. So I thought now would be an [excellent](https://luxuriousrentz.com) time to share my Ground Lease [Valuation Model](https://luxuriousrentz.com) in Excel.<br>
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<br>This model can be utilized standalone, or added to your [existing property-level](https://www.machinelinker.com) model. In either case, it is handy for both landowners looking to size a ground lease payment or leasehold owners looking to [understand](https://estreladeexcelencia.com) the worth of the leasehold (i.e. improvements) relative to the fee simple interest (i.e. land).<br>
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<br>Excel design for assessing a ground lease<br>
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<br>What is a Ground Lease and [Leasehold](https://realestatescy.com) Interest?<br>
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<br>If you unknown with the principles of [Ground Lease](https://www.vendacasas24.com) and Leasehold Interest, I'll refer you to the meanings in our Glossary of CRE Terms:<br>
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<br>[Ground lease](https://cn.relosh.com) - "A lease structure where a genuine estate financier leases the land (i.e. ground) only. In the case of a ground lease, typically one celebration owns the land (i.e. fee basic interest) while a separate party owns the improvements (i.e. leasehold interest). In many cases, the owner of the land leases the land to the owner of the enhancements for an extended amount of time (20 - 100 years)."<br>
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<br>[Leasehold](https://terrenospuertomorelos.com) Interest - "In property, a leasehold interest describes a structure where a specific or entity (lessee) leases the land (i.e. ground lease) from the fee basic owner (lessor) of the land for a prolonged duration of time. The lessee of a leasehold estate will usually own the improvements on the land and utilize the land and improvements as if the lessee were the owner of the land. During the term of the ground lease, the lessee will pay lease to the lessor for usage of the land. At the end of the ground lease term, the lessee must return usage of the land, and any improvements thereon, to the land owner.<br>
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<br>Ground leases prevail to prime locations, where landowners don't always wish to sell however where they may not have the competence (or desire) to run. Thus, they lease the land to someone who owns and runs the improvements on the land, and receive a ground lease payment in return. You see this on a regular basis with office buildings in the downtown core of major cities.<br>
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<br>Another case where you'll face ground leases are in retail shopping mall. Oftentimes, prominent retail tenants choose to build and own their area but the designer does not always want to sell the land. So, the retail renter will agree to lease the ground for 40+ years and develop their own structure on the rented land. Banks, nationwide dining establishments in outparcels, and big outlet store are examples of renters that often concur to this structure.<br>
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<br>Quick Note: Not interested in DIY analysis? Consider working with A.CRE Consulting to handle your bespoke modeling job.<br>
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<br>How to Use the Ground Lease Valuation Model<br>
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<br>All sections of the Ground Lease Valuation Model are included on one worksheet. This is intentional to enable you to insert this model into your own property-level design to make it simpler to add a ground lease component to your analysis.<br>
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<br>All analysis is carried out on the tab entitled 'Ground Lease'. A 'Version' tab is also included where you can view a modification log for the model, as well as discover important links related to the model.<br>
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<br>The Ground Lease worksheet is separated into 7 areas as described and described below:<br>
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<br>The Residential or commercial property Description section includes 5 inputs related to the investment. These inputs are:<br>
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<br>SF/M2 - In cell I3 get in whether the step of size remains in square feet (SF) or square meters (M2).
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Residential or commercial property Name - Name of the financial investment. It prevails in real estate to append the name of the investment with (Ground Lease) to signify that the financial investment is for the fee easy interest in land with a ground lease.
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Address - Address, city, state/province, zip/postal code, and country.
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Land Size - Total SF or M2 of land. The number of acres or hectares will than instantly be determined in cell E6.
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Leasehold Net Rentable Area - Total net rentable area in SF or M2 of the physical improvements (i.e. the leasehold). The land is assumed to be owned by one individual or entity, and the leasehold interest (i.e. enhancements) to be owned by a separate person or entity. So for example, you might be considering getting the arrive at which a Target Superstore is developed. Target owns the building and is leasing the land for some extended amount of time. The total rentable area of the structure is the 'Leasehold Net Rentable Area'.<br>
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<br>Section 1 - Residential Or Commercial Property Description<br>
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<br>The Investment Timing area includes 4 required inputs and one optional inputs. These inputs belong to the chronology of the ground lease and financial investment.<br>
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<br>Ground Lease Start Date - The month and year when the ground lease started. This must likewise be the month and year of the first payment.
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Next Ground Lease Payment - The month and year when the next ground lease payment is due.
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Ground Lease Length (Years) - The length of the ground lease in years from ground lease start through ground lease maturity. This is the overall length of the ground lease, not the variety of years remaining. The optimum length is 100 years. Based on the ground lease length, the model then calculates the Ground Lease End Date (i.e. maturity date).
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Analysis Start Date - The month and year that the analysis is to begin. This typically is equivalent to the Next Ground Lease Payment date, although the design was built to permit analysis to start prior to the Next Ground Lease Payment date.
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Analysis End Date - An optional input, this is by default the Ground Lease End Date. In case you're examining a much shorter hold period, merely change the orange font cell I17 to the preferred analysis end date.<br>
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<br>Section 2 - Investment Timing<br>
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<br>The Ground Lease Terms area includes business regards to the ground lease, including payment amount, frequency, and lease boosts. This section includes five inputs plus the choice to manually model the lease payment amounts.<br>
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<br>Initial Payment Amount - The amount of the very first lease payment. Depending on the payment frequency input (see below), this quantity might be for a yearly or monthly payment.
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Lease Increase Method - The method used to design lease increases. This can either be: None - No rent increases.
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% Inc. - A percentage increase over the previous lease amount.
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$ Inc. - A quantity boost over the previous rent amount.
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Custom - Manually design the rent payment amounts by year. If Custom is picked, the yearly lease payment amounts in row 26 become inputs for you to manually alter (i.e. font turns blue). Important Note: If you choose Custom and start to alter the yearly rent payment amounts in row 26, there is no method to revert back to another Lease Increase Method.<br>
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<br>Section 3 - Ground Lease Terms<br>
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<br>It is within the Valuation (Fee and Leasehold) area where you determine the reversion value of the land (i.e. ground lease), the present worth of the land (i.e. ground lease), and the imputed value of the leasehold interest. This area is broken up into 3 subsections, with five inputs and one optional input across the three subsections.<br>
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<br>Ground Lease Reversion Value - Within this subsection you design the worth of the residential or commercial property as if there was no ground lease. Or simply put, a typical direct cap evaluation of a real estate investment. Inputs consist of: Current Net Operating Income (Annual Before Ground Lease Payment) - Enter the annual net operating income stemmed from leasing the enhancements, unique of any ground lease payment.
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Market Cap Rate - The cap rate for the residential or commercial property, as if no ground lease was included. The concept being to get to a worth of the residential or commercial property before accounting for the ground lease.
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Retenanting Costs (Nominal) - At the end of the ground lease term, the ground lessor will get back the land plus any enhancements on the land. What will it cost (i.e. Retenanting) to retenant the residential or commercial property in today's cost (i.e. before inflation). Retenanting may include easy leasing costs, it may consist of renovation and leasing, or it may consist of tearing down the building and rebuilding something new. The idea is to get to a 'Net Reversion Value (Nominal)' after representing the cost to retenant.
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Reversion Growth Rate (Each Year) - All of the above computations are done before accounting for inflation (i.e. growth). Enter a growth rate here, and the 'Net Reversion Value (Nominal)' will be grown to come to a 'Reversion Value (Adjusted for Growth)' utilized as the reversion value in the ground lease present worth estimation.
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Reversion Value (Adjusted for Growth) - Optional Input. The reversion worth utilized in the ground lease present value calculation. It is computed by taking the residential or commercial property value net of any retenanting expenses, and after that growing it by a development rate. The value is an optional input in the occasion you desire to personalize the reversion value.<br>
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<br>Discount Rate - The discount rate at which to compute today value of the ground lease cash circulations. Consider this discount rate as a difficulty rate (i.e. necessary rate of return) for a ground lease investment.<br>
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<br>Section 4 - Valuation (Fee and Leasehold)<br>
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<br>The Ground Lease Returns (Unlevered) area allows you to compute the unlevered (i.e. before debt) returns of a ground lease financial investment. If you are thinking about purchasing a ground lease, it is within this section where you can enter your acquisition/investment expense, and see the corresponding returns from that financial investment. The section includes just one input. <br>
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<br>Ground Lease Investment Cost - This is the cost to obtain land with a ground lease. It ought to include the acquisition expense, together with any other due diligence, closing, and pursuit costs related to the financial investment.<br>[thesaurus.com](https://www.thesaurus.com/browse/commercial)
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<br>After getting in the Ground Lease Investment Cost, the area calculates 5 return metrics:<br>
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<br>- Unlevered Internal Rate of Return
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- Unlevered Equity Multiple
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- Net Profit
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Average Rate of Return
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- Average Free-and-Clear Return<br>
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<br>Note that the resulting returns are highly dependent on the analysis duration, payment schedule, and reversion worth.<br>
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<br>Section 5 - Ground Lease Returns (Unlevered)<br>
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<br>The Ground Lease Returns (Levered) area enables you to compute the levered (i.e. with financial obligation) returns of a ground lease financial investment. If you are thinking about acquiring a ground lease and intend to fund the purchase, it is within this area where you can get in the debt assumptions, and see the corresponding return from that levered investment. The area includes three inputs.<br>
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<br>Ground Lease Permanent Loan Amount LTV- Enter the loan-to-value of the ground lease mortgage, and the design will determine the loan quantity.
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- Annual Rates Of Interest - The yearly rate to be paid on the mortgage. Note that the model currently only enables an interest-only loan.
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- Interest-Only Payment (Annual vs. Monthly) - Enter whether the mortgage payment will be due month-to-month or yearly.<br>
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<br>After going into the debt presumptions for the ground lease investment, the section calculates 5 return metrics:<br>
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<br>- - Levered Internal Rate of Return
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- Levered Equity Multiple
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- Net Profit
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- Average Rate of Return
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- Average Cash-on-Cash Return<br>
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<br>As with the unlevered analysis, the resulting returns are highly based on the analysis period, payment schedule, and reversion worth. The quantity and rate of the debt will likewise heavily drive the levered return. And as a suggestion, in the meantime the design only enables financial obligation with interest-only payments and a balloon at the end of the analysis period.<br>
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<br>Section 6 - Ground Lease Returns (Levered)<br>
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<br>The last area is where backend inputs used in the numerous data recognition lists are discovered. Unless you mean to modify the model, there is no reason to alter the worths in this section.<br>
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<br>Section 7 - Data Validation<br>
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<br>Video Walkthrough - Using the Ground Lease Valuation Model<br>
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<br>In addition to the written assistance above, I've put together a short video that strolls you through the numerous areas of the model. Note that this video is based on v1.0 of the model.<br>
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<br>Download the Ground Lease Valuation Model<br>
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<br>To make this model available to everyone, it is provided on a "Pay What You're Able" basis with no minimum (go into $0 if you 'd like) or maximum (your support helps keep the content coming - common property assessment designs offer for $100 - $300+ per license). Just enter a price together with an email address to send the download link to, and after that click 'Continue'. If you have any questions about our "Pay What You're Able" program or why we offer our designs on this basis, please connect to either Mike or Spencer.<br>
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<br>We routinely update the design (see variation notes). Paid factors to the design receive a new download link through e-mail each time the design is updated.<br>
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<br>Version Notes<br>
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<br>Version 2.33<br>
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<br>- Rewrote 'Quick Start Guide' with updates and for improved readability
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- Updates to placeholder values
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- Fix to misspelled word on Version tab<br>
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<br>Version 2.32<br>
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<br>- Removed redundant details in E17: G17.
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- Updated I22 to show more accurate years of term remaining.
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- Updates to placeholder values<br>
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<br>Version 2.31<br>
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<br>- Further revisions to logic in I59<br>
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<br>Version 2.3<br>
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<br>- Fixed concern where the OFFSET() variety in the optional formula for 'Reversion Value' (I59) was missing the last cell<br>
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<br>Version 2.2<br>
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<br>- Revised formula in M26: DG26 to resolve for concern when payment is Monthly and not % Inc (thanks to Accelerator member JS for the fix!).
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- Updates to placeholder values<br>
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<br>Version 2.1<br>
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<br>- Updates to placeholder values.
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- Added additional notes under 'Quick Start Guide' to clarify typical confusion around start dates for various areas.
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- Misc. formatting updates<br>
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<br>Version 2.0<br>
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<br>- Moved 'Analysis Start', 'Analysis Period', and 'Analysis End' inputs above Ground Lease dates for improved user experience.
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- Added a 'Flying Start Guide' to supply a tutorial for utilizing the model.
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- Renamed 'Lease Increase Method' to 'Lease Payment Increase Method' for information purposes.
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- Renamed 'Ground Lease Reversion Value' to 'Current Fee Simple Value and Ground Lease Reversion Value'.
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- Added 'Investment Term' presumption to permit investor to examine returns on an Analysis Period shorter than the Ground Lease term - Renamed 'Investment Timing' to 'Valuation Timing' to distinguish in between valuation and investment returns.
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- Renamed 'Analysis Start Date' to 'Valuation Start Date', 'Analysis Period' to 'Valuation Period', and 'Analysis End' to 'Valuation End'.
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- Updated heading format to better separate in between Valuations areas and Investment Returns sections.
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- Adjusted return solutions to make dynamic to Investment Hold Period<br>
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<br>Version 1.0<br>
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<br>- Initial release<br>
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<br>About the Author: Spencer Burton is Co-Founder and CEO of CRE Agents, an AI-powered platform training digital colleagues for commercial genuine estate. He has 20+ years of CRE experience and has actually financed over $30 billion in property across top institutional companies.<br>
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