From 7b7e6bfb98a4f493f60e9ceb42c3558ee84cfe38 Mon Sep 17 00:00:00 2001 From: keribarge64113 Date: Thu, 18 Sep 2025 06:12:55 +0800 Subject: [PATCH] Add Ground Lease Valuation Model (Updated Mar 2025). --- ...Valuation-Model-%28Updated-Mar-2025%29..md | 104 ++++++++++++++++++ 1 file changed, 104 insertions(+) create mode 100644 Ground-Lease-Valuation-Model-%28Updated-Mar-2025%29..md diff --git a/Ground-Lease-Valuation-Model-%28Updated-Mar-2025%29..md b/Ground-Lease-Valuation-Model-%28Updated-Mar-2025%29..md new file mode 100644 index 0000000..c4cdcd1 --- /dev/null +++ b/Ground-Lease-Valuation-Model-%28Updated-Mar-2025%29..md @@ -0,0 +1,104 @@ +
The [subject](https://altamiz.com) of ground leases has shown up numerous times in the previous couple of weeks. Numerous A.CRE readers have emailed to request a purpose-built Ground Lease Valuation Model. And I'm in the process of developing an Advanced Concepts Module for our real estate monetary modeling Accelerator program covering the [mechanics](https://www.vendacasas24.com) of [modeling ground](https://www.growhomesestate.com) leases. So I thought now would be a great time to share my [Valuation Model](https://avcorrealty.com) in Excel.
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This design can be [utilized](https://www.amlakbanoo.com) standalone, or contributed to your existing property-level model. Either method, it is useful for both [landowners seeking](https://homedirectng.com) to size a [ground lease](https://kerkobanese.com) payment or leasehold owners wanting to [comprehend](https://www.masercondosales.com) the value of the [leasehold](https://yabiza.com) (i.e. improvements) relative to the fee simple interest (i.e. land).
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Excel design for examining a ground lease
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What is a Ground Lease and [Leasehold](http://www.raulestay.cl) Interest?
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If you not [familiar](https://yourhomewitharturo.com) with the principles of Ground Lease and Leasehold Interest, [I'll refer](https://sharkoss.ai) you to the [meanings](https://kenyapropertyfinder.com) in our Glossary of CRE Terms:
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[Ground lease](https://restosales.net) - "A lease structure where an investor leases the land (i.e. ground) just. When it comes to a ground lease, usually one party owns the land (i.e. charge simple interest) while a separate party owns the enhancements (i.e. leasehold interest). For the most part, the owner of the land leases the land to the owner of the enhancements for a prolonged time period (20 - 100 years)."
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Leasehold Interest - "In property, a leasehold interest describes a structure where a specific or entity (lessee) leases the land (i.e. ground lease) from the cost basic owner (lessor) of the land for a prolonged period of time. The lessee of a leasehold estate will generally own the enhancements on the land and utilize the land and improvements as if the lessee were the owner of the land. During the regard to the ground lease, the lessee will pay rent to the lessor for use of the land. At the end of the ground lease term, the lessee needs to return usage of the land, and any improvements thereon, to the land owner.
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Ground leases prevail to prime places, where landowners don't always wish to sell but where they might not have the know-how (or desire) to run. Thus, they rent the land to somebody who owns and runs the enhancements on the land, and receive a ground lease payment in return. You see this on a regular basis with workplace structures in the downtown core of significant cities.
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Another case where you'll face ground leases are in retail shopping mall. Oftentimes, popular retail renters prefer to build and own their area but the developer doesn't always wish to sell the land. So, the retail renter will concur to rent the ground for 40+ years and develop their own structure on the rented land. Banks, national restaurants in outparcels, and big outlet store are examples of renters that typically accept this structure.
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Quick Note: Not thinking about DIY analysis? Consider working with A.CRE Consulting to manage your bespoke modeling job.
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How to Use the Ground Lease Valuation Model
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All areas of the Ground Lease Valuation Model are contained on one worksheet. This is deliberate to allow you to place this design into your own property-level model to make it easier to include a ground lease component to your analysis.
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All analysis is carried out on the tab entitled 'Ground Lease'. A 'Version' tab is also included where you can see a change log for the design, in addition to find crucial links connected to the model.
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The Ground Lease worksheet is separated into seven sections as detailed and discussed listed below:
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The Residential or commercial property Description area includes 5 inputs associated to the financial investment. These inputs are:
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SF/M2 - In cell I3 enter whether the measure of size is in square feet (SF) or square meters (M2). +Residential or commercial property Name - Name of the financial investment. It prevails in realty to append the name of the financial investment with (Ground Lease) to signify that the financial investment is for the fee easy interest in land with a ground lease. +Address - Address, city, state/province, zip/postal code, and nation. +Land Size - Total SF or M2 of land. The number of acres or hectares will than instantly be determined in cell E6. +Leasehold Net Rentable Area - Total net rentable area in SF or M2 of the physical enhancements (i.e. the leasehold). The land is presumed to be owned by one person or entity, and the leasehold interest (i.e. enhancements) to be owned by a separate person or entity. So for circumstances, you may be thinking about obtaining the land on which a Target Superstore is constructed. Target owns the building and is renting the land for some extended time period. The overall rentable area of the structure is the 'Leasehold Net Rentable Area'.
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Section 1 - Residential Or Commercial Property Description
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The Investment Timing section includes four required inputs and one optional inputs. These inputs relate to the chronology of the ground lease and financial investment.
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Ground Lease Start Date - The month and year when the ground lease started. This ought to likewise be the month and year of the very first payment. +Next Ground Lease Payment - The month and year when the next ground lease payment is due. +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 number of years remaining. The maximum length is 100 years. Based upon the ground lease length, the model then calculates the Ground Lease End Date (i.e. maturity date). +Analysis Start Date - The month and year that the analysis is to begin. This usually is equivalent to the Next Ground Lease Payment date, although the model was developed to permit analysis to start prior to the Next Ground Lease Payment date. +Analysis End Date - An optional input, this is by default the Ground Lease End Date. In case you're examining a shorter hold duration, simply alter the orange font cell I17 to the favored analysis end date.
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Section 2 - Investment Timing
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The Ground Lease Terms section consists of the service terms of the ground lease, consisting of payment amount, frequency, and lease boosts. This section includes 5 inputs plus the choice to by hand model the rent payment quantities.
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Initial Payment Amount - The quantity of the first lease payment. Depending upon the payment frequency input (see listed below), this amount may be for a yearly or monthly payment. +Lease Increase Method - The technique utilized to model lease increases. This can either be: None - No rent boosts. +% Inc. - A portion increase over the previous lease amount. +$ Inc. - An amount boost over the previous rent quantity. +Custom - Manually model the lease payment amounts by year. If Custom is selected, the yearly rent payment amounts in row 26 become inputs for you to by hand alter (i.e. typeface turns blue). Important Note: If you pick Custom and begin to alter the annual rent payment quantities in row 26, there is no chance to revert back to another Lease Increase Method.
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Section 3 - Ground Lease Terms
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It is within the Valuation (Fee and Leasehold) section 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 worth of the leasehold interest. This area is separated into three subsections, with five inputs and one optional input across the three subsections.
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Ground Lease Reversion Value - Within this subsection you model the worth of the residential or commercial property as if there was no ground lease. Or simply put, a normal direct cap evaluation of a genuine estate financial investment. Inputs consist of: Current Net Operating Income (Annual Before Ground Lease Payment) - Enter the annual net operating income stemmed from renting the enhancements, special of any ground lease payment. +Market Cap Rate - The cap rate for the residential or commercial property, as if no ground lease was consisted of. The idea being to get to a worth of the residential or commercial property before accounting for the ground lease. +Retenanting Costs (Nominal) - At the end of the ground lease term, the ground lessor will get back the land plus any improvements on the land. What will it cost (i.e. Retenanting) to retenant the residential or commercial property in today's expense (i.e. before inflation). Retenanting may consist of easy leasing costs, it may consist of renovation and leasing, or it might consist of taking apart the structure and restoring something new. The concept is to get to a 'Net Reversion Value (Nominal)' after accounting for the expense to retenant. +Reversion Growth Rate (Per Year) - All of the above calculations are done before accounting for inflation (i.e. development). Enter a development rate here, and the 'Net Reversion Value (Nominal)' will be grown to get here at a 'Reversion Value (Adjusted for Growth)' utilized as the reversion worth in the ground lease present worth calculation. +Reversion Value (Adjusted for Growth) - Optional Input. The reversion worth used in the ground lease present value estimation. It is determined by taking the residential or commercial property value web of any retenanting expenses, and after that growing it by a growth rate. The worth is an optional input in the event you wish to tailor the reversion value.
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Discount Rate - The discount rate at which to determine the present worth of the ground lease money flows. Think about this discount rate as an obstacle rate (i.e. necessary rate of return) for a ground lease financial investment.
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Section 4 - Valuation (Fee and Leasehold)
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The Ground Lease Returns (Unlevered) section enables you to compute the unlevered (i.e. before debt) returns of a ground lease financial investment. If you are thinking about buying a ground lease, it is within this section where you can enter your acquisition/investment cost, and see the matching returns from that financial investment. The area includes just one input.
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Ground Lease Investment Cost - This is the expense to get land with a ground lease. It needs to consist of the acquisition expense, together with any other due diligence, closing, and pursuit expenses associated with the financial investment.
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After entering the Ground Lease Investment Cost, the area computes five return metrics:
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- Unlevered Internal Rate of Return +- Unlevered Equity Multiple +- Net Profit +Average Rate of Return +- Average Free-and-Clear Return
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Note that the resulting returns are highly dependent on the analysis duration, payment schedule, and reversion worth.
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Section 5 - Ground Lease Returns (Unlevered)
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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 considering purchasing a ground lease and mean to fund the purchase, it is within this section where you can enter the financial obligation presumptions, and see the matching return from that levered financial investment. The section consists of three inputs.
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Ground Lease Permanent Loan Amount LTV- Enter the loan-to-value of the ground lease mortgage, and the model will determine the loan amount. +- Annual Rates Of Interest - The annual rate to be paid on the mortgage. Note that the model presently just permits an interest-only loan. +- Interest-Only Payment (Annual vs. Monthly) - Enter whether the mortgage payment will be due month-to-month or annually.
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After getting in the debt assumptions for the ground lease investment, the area calculates 5 return metrics:
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- - Levered Internal Rate of Return +- Levered Equity Multiple +- Net Profit +- Average Rate of Return +- Average Cash-on-Cash Return
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As with the unlevered analysis, the resulting returns are highly reliant on the analysis duration, payment schedule, and reversion value. The amount and rate of the financial obligation will likewise greatly drive the levered return. And as a tip, in the meantime the design only permits debt with interest-only payments and a balloon at the end of the analysis duration.
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Section 6 - Ground Lease Returns (Levered)
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The last area is where backend inputs used in the various information recognition lists are discovered. Unless you plan to customize the design, there is no factor to change the values in this section.
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Section 7 - Data Validation
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Video Walkthrough - Using the Ground Lease Valuation Model
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In addition to the composed guidance above, I've put together a brief video that strolls you through the various sections of the design. Note that this video is based upon v1.0 of the design.
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Download the Ground Lease Valuation Model
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To make this model available to everyone, it is provided on a "Pay What You're Able" basis without any minimum (enter $0 if you 'd like) or maximum (your assistance assists keep the material coming - typical real estate valuation designs cost $100 - $300+ per license). Just go into a rate together with an e-mail address to send the download link to, and after that click 'Continue'. If you have any concerns about our "Pay What You're Able" program or why we provide our models on this basis, please reach out to either Mike or Spencer.
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We regularly update the design (see variation notes). Paid contributors to the model get a brand-new download link by means of e-mail each time the model is upgraded.
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Version Notes
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Version 2.33
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- Rewrote 'Quick Start Guide' with updates and for enhanced readability +- Updates to placeholder values +- Fix to misspelled word on Version tab
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Version 2.32
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- Removed redundant details in E17: G17. +- Updated I22 to show more precise years of term staying. +- Updates to placeholder worths
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Version 2.31
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- Further revisions to reasoning in I59
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Version 2.3
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- Fixed problem where the OFFSET() variety in the optional formula for 'Reversion Value' (I59) was missing the last cell
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Version 2.2
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- Revised formula in M26: DG26 to fix for problem when payment is Monthly and not % Inc (thanks to Accelerator member JS for the repair!). +- Updates to placeholder values
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Version 2.1
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- Updates to placeholder worths. +- Added extra notes under 'Quick Start Guide' to clarify common confusion around start dates for various areas. +- Misc. formatting updates
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Version 2.0
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- Moved 'Analysis Start', 'Analysis Period', and 'Analysis End' inputs above Ground Lease dates for improved user experience. +- Added a 'Flying Start Guide' to supply a tutorial for utilizing the design. +- Renamed 'Lease Increase Method' to 'Lease Payment Increase Method' for information purposes. +- Renamed 'Ground Lease Reversion Value' to 'Current Fee Simple Value and Ground Lease Reversion Value'. +- Added 'Investment Term' assumption to enable investor to analyze returns on an Analysis Period shorter than the Ground Lease term - Renamed 'Investment Timing' to 'Valuation Timing' to differentiate in between appraisal and investment returns. +- Renamed 'Analysis Start Date' to 'Valuation Start Date', 'Analysis Period' to 'Valuation Period', and 'Analysis End' to 'Valuation End'. +- Updated heading formatting to better separate in between Valuations sections and Investment Returns sections. +- Adjusted return solutions to make vibrant to Investment Hold Period
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Version 1.0
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- Initial release
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About the Author: Spencer Burton is Co-Founder and CEO of CRE Agents, an AI-powered platform training digital coworkers for industrial realty. He has 20+ years of CRE experience and has actually financed over $30 billion in realty throughout top institutional companies.
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