Add Ground Lease Valuation Model (Updated Mar 2025).

Ground-Lease-Valuation-Model-%28Updated-Mar-2025%29..md

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+<br>The subject of ground leases has actually turned up numerous times in the past few weeks. Numerous A.CRE readers have actually emailed to request for a [purpose-built Ground](https://atflat.ge) Lease Valuation Model. And I'm in the procedure of producing an Advanced Concepts Module for our [realty financial](https://www.22401414.com) modeling Accelerator program covering the mechanics of [modeling ground](https://mspdeveloper.com) leases. So I thought now would be a great time to share my [Ground Lease](https://realestategrupo.com) [Valuation](https://mspdeveloper.com) Model in Excel.<br>
+<br>This model can be used standalone, or [included](https://www.vibhaconsultancy.com) to your [existing property-level](https://kenyapropertyfinder.com) model. In any case, it is [helpful](https://mckenziepropertiestrnc.com) for both landowners wanting to size a [ground lease](https://stayonrent.in) [payment](https://hauntley.com) or [leasehold owners](https://kopenaandecosta.nl) aiming to understand the worth of the leasehold (i.e. improvements) relative to the cost easy interest (i.e. land).<br>[wikipedia.org](https://www.wikipedia.org/)
+<br>Excel design for [assessing](https://estatedynamicltd.com) a ground lease<br>
+<br>What is a Ground Lease and [Leasehold](https://villa-piscine.fr) Interest?<br>
+<br>If you not familiar with the concepts of [Ground Lease](https://atofabproperties.com) and Leasehold Interest, I'll refer you to the definitions in our Glossary of CRE Terms:<br>
+<br> - "A lease structure where a real estate financier rents the land (i.e. ground) just. In the case of a ground lease, generally one party owns the land (i.e. charge simple interest) while a different celebration owns the improvements (i.e. leasehold interest). For the most part, the owner of the land rents the land to the owner of the improvements for a prolonged duration of time (20 - 100 years)."<br>
+<br>Leasehold Interest - "In genuine estate, a leasehold interest describes a structure where an individual or entity (lessee) leases the land (i.e. ground lease) from the cost basic owner (lessor) of the land for an extended time period. The lessee of a leasehold estate will usually own the enhancements on the land and use the land and enhancements as if the lessee were the owner of the land. During the term of 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 should return usage of the land, and any improvements thereon, to the land owner.<br>
+<br>Ground leases prevail to prime places, where landowners do not necessarily want to offer however where they might not have the know-how (or desire) to operate. Thus, they rent the land to someone who owns and operates the enhancements on the land, and get a ground lease payment in return. You see this rather typically with workplace buildings in the downtown core of major cities.<br>
+<br>Another case where you'll encounter ground leases remain in retail shopping centers. Oftentimes, popular retail occupants prefer to construct and own their area however the designer doesn't necessarily wish to offer the land. So, the retail tenant will consent to lease the ground for 40+ years and build their own structure on the leased land. Banks, national restaurants in outparcels, and large outlet store are examples of occupants that typically accept this structure.<br>
+<br>Quick Note: Not interested in DIY analysis? Consider dealing with A.CRE Consulting to manage your bespoke modeling task.<br>
+<br>How to Use the Ground Lease Valuation Model<br>
+<br>All areas of the Ground Lease Valuation Model are contained on one worksheet. This is intentional to enable you to insert this model into your own property-level design to make it much easier to add a ground lease part to your analysis.<br>
+<br>All analysis is performed on the tab entitled 'Ground Lease'. A 'Version' tab is also included where you can see a modification log for the design, as well as discover essential links connected to the model.<br>
+<br>The Ground Lease worksheet is broken up into seven sections as outlined and explained listed below:<br>
+<br>The Residential or commercial property Description section consists of five inputs related to the financial investment. These inputs are:<br>
+<br>SF/M2 - In cell I3 get in 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 is common in realty to add the name of the financial investment with (Ground Lease) to signify that the investment is for the fee easy interest in land with a ground lease.
+Address - Address, city, state/province, zip/postal code, and country.
+Land Size - Total SF or M2 of land. The variety of acres or hectares will than automatically be determined in cell E6.
+Leasehold Net Rentable Area - Total net rentable location in SF or M2 of the physical improvements (i.e. the leasehold). The land is presumed to be owned by one person or entity, and the leasehold interest (i.e. improvements) to be owned by a separate individual or entity. So for instance, you might be considering obtaining the arrive on which a Target Superstore is constructed. Target owns the structure and is renting the land for some prolonged amount of time. The overall rentable location of the building is the 'Leasehold Net Rentable Area'.<br>
+<br>Section 1 - Residential Or Commercial Property Description<br>
+<br>The Investment Timing area includes four required inputs and one optional inputs. These inputs belong to the chronology of the ground lease and financial investment.<br>[google.ch](https://www.google.ch/)
+<br>Ground Lease Start Date - The month and year when the ground lease started. This must also 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 beginning through ground lease maturity. This is the total length of the ground lease, not the number of years staying. The maximum length is 100 years. Based on the ground lease length, the model then determines the Ground Lease End Date (i.e. maturity date).
+Analysis Start Date - The month and year that the analysis is to begin. This typically is equal to the Next Ground Lease Payment date, although the design was constructed to allow for 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 analyzing a much shorter hold period, simply change the orange font cell I17 to the favored analysis end date.<br>
+<br>Section 2 - Investment Timing<br>
+<br>The Ground Lease Terms area contains the service terms of the ground lease, including payment quantity, frequency, and rent increases. This area consists of 5 inputs plus the option to by hand design the rent payment amounts.<br>
+<br>Initial Payment Amount - The amount of the first lease payment. Depending on the payment frequency input (see below), this amount may be for an annual or month-to-month payment.
+Lease Increase Method - The technique utilized to design rent boosts. This can either be: None - No rent increases.
+% Inc. - A percentage boost over the previous lease amount.
+$ Inc. - An amount increase over the previous rent quantity.
+Custom - Manually design the rent payment amounts by year. If Custom is picked, the annual rent payment amounts in row 26 end up being inputs for you to by hand alter (i.e. font turns blue). Important Note: If you select Custom and begin to alter the yearly lease payment quantities in row 26, there is no way to revert back to another Lease Increase Method.<br>
+<br>Section 3 - Ground Lease Terms<br>
+<br>It is within the Valuation (Fee and Leasehold) area where you calculate the reversion value of the land (i.e. ground lease), the present value of the land (i.e. ground lease), and the imputed value of the leasehold interest. This section is broken up into 3 subsections, with five inputs and one optional input across the three subsections.<br>
+<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 to put it simply, a common direct cap valuation of a property investment. Inputs consist of: Current Net Operating Income (Annual Before Ground Lease Payment) - Enter the yearly net operating income stemmed from renting the improvements, unique 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 concept being to reach a value of the residential or commercial property before representing 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 might consist of simple leasing expenses, it may include restoration and leasing, or it might consist of taking down the structure and reconstructing something new. The idea is to reach a 'Net Reversion Value (Nominal)' after accounting for the cost to retenant.
+Reversion Growth Rate (Annually) - All of the above computations are done before accounting for inflation (i.e. development). Enter a development rate here, and the 'Net Reversion Value (Nominal)' will be grown to come to a 'Reversion Value (Adjusted for Growth)' used as the reversion worth in the ground lease present value computation.
+Reversion Value (Adjusted for Growth) - Optional Input. The reversion worth utilized in the ground lease present worth estimation. It is calculated by taking the residential or commercial property worth internet of any retenanting costs, and after that growing it by a growth rate. The worth is an optional input in case you wish to tailor the reversion value.<br>
+<br>Discount Rate - The discount rate at which to determine today value of the ground lease capital. Think about this discount rate as an obstacle rate (i.e. required rate of return) for a ground lease investment.<br>
+<br>Section 4 - Valuation (Fee and Leasehold)<br>
+<br>The Ground Lease Returns (Unlevered) section enables you to compute the unlevered (i.e. before debt) returns of a ground lease investment. If you are considering acquiring a ground lease, it is within this area where you can enter your acquisition/investment cost, and see the corresponding returns from that financial investment. The area includes simply one input. <br>
+<br>Ground Lease Investment Cost - This is the cost to acquire land with a ground lease. It ought to consist of the acquisition cost, together with any other due diligence, closing, and pursuit costs related to the investment.<br>
+<br>After going into the Ground Lease Investment Cost, the section calculates five return metrics:<br>
+<br>- Unlevered Internal Rate of Return
+- Unlevered Equity Multiple
+- Net Profit
+Average Rate of Return
+- Average Free-and-Clear Return<br>
+<br>Note that the resulting returns are highly depending on the analysis duration, payment schedule, and reversion value.<br>
+<br>Section 5 - Ground Lease Returns (Unlevered)<br>
+<br>The Ground Lease Returns (Levered) section 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 finance the purchase, it is within this area where you can enter the debt assumptions, and see the corresponding return from that levered investment. The section consists of 3 inputs.<br>
+<br>Ground Lease Permanent Loan Amount LTV- Enter the loan-to-value of the ground lease mortgage, and the design will compute the loan amount.
+- Annual Interest Rate - The annual rate to be paid on the mortgage. Note that the model presently just enables an interest-only loan.
+- Interest-Only Payment (Annual vs. Monthly) - Enter whether the mortgage payment will be due month-to-month or every year.<br>
+<br>After entering the financial obligation assumptions for the ground lease investment, the section calculates five return metrics:<br>
+<br>- - Levered Internal Rate of Return
+- Levered Equity Multiple
+- Net Profit
+- Average Rate of Return
+- Average Cash-on-Cash Return<br>
+<br>As with the unlevered analysis, the resulting returns are highly reliant on the analysis period, payment schedule, and reversion worth. The quantity and rate of the financial obligation will also heavily drive the levered return. And as a suggestion, in the meantime the model just permits for debt with interest-only payments and a balloon at the end of the analysis period.<br>
+<br>Section 6 - Ground Lease Returns (Levered)<br>
+<br>The final area is where backend inputs utilized in the numerous information validation lists are discovered. Unless you intend to customize the design, there is no reason to alter the worths in this section.<br>
+<br>Section 7 - Data Validation<br>
+<br>Video Walkthrough - Using the Ground Lease Valuation Model<br>
+<br>In addition to the written assistance above, I've created a brief video that walks you through the numerous sections of the design. Note that this video is based upon v1.0 of the model.<br>
+<br>Download the Ground Lease Valuation Model<br>
+<br>To make this design 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 assists keep the material coming - common realty appraisal designs offer for $100 - $300+ per license). Just enter a price together with an e-mail address to send out the download link to, and then 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.<br>
+<br>We regularly upgrade the model (see variation notes). Paid factors to the design get a new download link via e-mail each time the design is upgraded.<br>
+<br>Version Notes<br>
+<br>Version 2.33<br>
+<br>- Rewrote 'Quick Start Guide' with updates and for improved readability
+- Updates to placeholder values
+- Fix to misspelled word on Version tab<br>
+<br>Version 2.32<br>
+<br>- Removed redundant details in E17: G17.
+- Updated I22 to reflect more accurate years of term remaining.
+- Updates to placeholder worths<br>
+<br>Version 2.31<br>
+<br>- Further revisions to logic in I59<br>
+<br>Version 2.3<br>
+<br>- Fixed problem where the OFFSET() range in the optional formula for 'Reversion Value' (I59) was missing out on the last cell<br>
+<br>Version 2.2<br>
+<br>- 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<br>
+<br>Version 2.1<br>
+<br>- Updates to placeholder values.
+- Added additional notes under 'Flying start Guide' to clarify typical confusion around start dates for various areas.
+- Misc. formatting updates<br>
+<br>Version 2.0<br>
+<br>- Moved 'Analysis Start', 'Analysis Period', and 'Analysis End' inputs above Ground Lease dates for enhanced user experience.
+- Added a 'Quick Start Guide' to supply a tutorial for utilizing the design.
+- Renamed 'Lease Increase Method' to 'Lease Payment Increase Method' for explanation functions.
+- Renamed 'Ground Lease Reversion Value' to 'Current Fee Simple Value and Ground Lease Reversion Value'.
+- Added 'Investment Term' assumption to permit financier to analyze returns on an Analysis Period shorter than the Ground Lease term - Renamed 'Investment Timing' to 'Valuation Timing' to differentiate between valuation 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 much better separate in between Valuations sections and Investment Returns areas.
+- Adjusted return solutions to make dynamic to Investment Hold Period<br>
+<br>Version 1.0<br>
+<br>- Initial release<br>
+<br>About the Author: Spencer Burton is Co-Founder and CEO of CRE Agents, an AI-powered platform training digital colleagues for business real estate. He has 20+ years of CRE experience and has actually financed over $30 billion in real estate throughout leading institutional companies.<br>