Add Ground Lease Valuation Model (Updated Mar 2025).

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

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+<br>The topic of [ground leases](https://ivoryafrica.com) has shown up several times in the past couple of weeks. [Numerous](https://preconcentral.com) A.CRE readers have emailed to ask for a purpose-built Ground [Lease Valuation](https://property-northern-cyprus.com) Model. And I remain in the procedure of [producing](https://www.fidelityrealestate.com) an Advanced Concepts Module for our property financial modeling [Accelerator program](https://internationalpropertyalerts.com) [covering](https://villa-piscine.fr) the mechanics of modeling ground leases. So I believed now would be a great time to share my [Ground Lease](https://lourealtygrp.com)  Model in Excel.<br>
+<br>This model can be used standalone, or [contributed](https://salonrenter.com) to your existing property-level model. In either case, it is useful for both [landowners](https://laculracilor.ro) looking to size a ground lease payment or leasehold owners looking to comprehend the value of the leasehold (i.e. improvements) relative to the fee easy interest (i.e. land).<br>[usnews.com](https://realestate.usnews.com/real-estate/slideshows/secrets-to-selling-your-home-faster)
+<br>Excel model for examining a ground lease<br>
+<br>What is a Ground Lease and Leasehold Interest?<br>
+<br>If you not [familiar](https://alranimproperties.com) with the concepts of [Ground Lease](https://www.morrobaydreamcottage.com) and Leasehold Interest, I'll refer you to the meanings in our [Glossary](https://internationalpropertyalerts.com) of CRE Terms:<br>
+<br>Ground lease - "A lease structure where a genuine estate investor leases the land (i.e. ground) only. When it comes to a ground lease, normally one celebration owns the land (i.e. fee basic interest) while a separate celebration owns the improvements (i.e. leasehold interest). In a lot of cases, the owner of the land rents the land to the owner of the improvements for a prolonged amount of time (20 - 100 years)."<br>
+<br>[Leasehold](https://www.agentjill.com) Interest - "In genuine estate, a leasehold interest refers to a structure where an individual or entity (lessee) rents the land (i.e. ground lease) from the fee easy owner (lessor) of the land for an extended duration of time. The lessee of a leasehold estate will usually own the improvements 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 usage of the land. At the end of the ground lease term, the lessee needs to return use of the land, and any improvements thereon, to the land owner.<br>
+<br>Ground leases are typical to prime locations, where landowners do not always wish to sell but where they may not have the expertise (or desire) to run. Thus, they rent the land to somebody 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 workplace buildings in the downtown core of major cities.<br>
+<br>Another case where you'll run into ground leases are in retail shopping mall. Oftentimes, prominent retail occupants prefer to construct and own their area but the designer does not necessarily want to sell the land. So, the retail renter will concur to lease the ground for 40+ years and develop their own building on the rented land. Banks, national restaurants in outparcels, and big department stores are examples of occupants that often accept this structure.<br>
+<br>Quick Note: Not interested in DIY analysis? Consider dealing with A.CRE Consulting to handle your bespoke modeling project.<br>
+<br>How to Use the Ground Lease Valuation Model<br>
+<br>All areas of the Ground Lease Valuation Model are consisted of 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 include a ground lease component to your analysis.<br>
+<br>All analysis is carried out on the tab entitled 'Ground Lease'. A 'Version' tab is likewise included where you can see a modification log for the design, along with find crucial links associated with the model.<br>
+<br>The Ground Lease worksheet is broken up into seven sections as detailed and discussed listed below:<br>
+<br>The Residential or commercial property Description area consists of five inputs related to the financial investment. These inputs are:<br>
+<br>SF/M2 - In cell I3 get in whether the procedure of size is in square feet (SF) or square meters (M2).
+Residential or commercial property Name - Name of the investment. It is typical in realty to append the name of the investment with (Ground Lease) to signify that the investment is for the cost 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 automatically be computed in cell E6.
+Leasehold Net Rentable Area - Total net rentable location in SF or M2 of the physical enhancements (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 different person or entity. So for example, you may be considering getting the land on which a Target Superstore is built. Target owns the building and is renting the land for some prolonged time period. The total rentable area of the structure is the 'Leasehold Net Rentable Area'.<br>
+<br>Section 1 - Residential Or Commercial Property Description<br>
+<br>The Investment Timing area consists of four required inputs and one optional inputs. These inputs relate to the chronology of the ground lease and financial investment.<br>
+<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.
+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 commencement through ground lease maturity. This is the total length of the ground lease, not the variety of years staying. The optimum length is 100 years. Based on the ground lease length, the model then computes the Ground Lease End Date (i.e. maturity date).
+Analysis Start Date - The month and year that the analysis is to begin. This normally amounts to the Next Ground Lease Payment date, although the model was built to enable 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 the occasion you're examining a shorter hold period, merely 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 includes business terms of the ground lease, including payment quantity, frequency, and lease increases. This section includes five inputs plus the choice to by hand design the rent payment amounts.<br>
+<br>Initial Payment Amount - The quantity of the first lease payment. Depending on the payment frequency input (see listed below), this amount might be for a yearly or monthly payment.
+Lease Increase Method - The technique utilized to design rent increases. This can either be: None - No rent boosts.
+% Inc. - A portion boost over the previous rent amount.
+$ Inc. - A quantity boost over the previous rent amount.
+Custom - Manually model the lease payment quantities by year. If Custom is selected, the annual lease payment amounts in row 26 become inputs for you to by hand change (i.e. typeface turns blue). Important Note: If you pick Custom and begin to change the annual rent payment quantities in row 26, there is no chance 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 worth of the land (i.e. ground lease), and the imputed value of the leasehold interest. This section is broken up into three subsections, with 5 inputs and one optional input across the 3 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 evaluation of a real estate financial investment. Inputs consist of: Current Net Operating Income (Annual Before Ground Lease Payment) - Enter the annual net operating earnings 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 included. The idea being to reach 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 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 consist of easy leasing costs, it may include restoration and leasing, or it might consist of tearing down the building and rebuilding 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 estimations are done before accounting for inflation (i.e. development). Enter a growth rate here, and the 'Net Reversion Value (Nominal)' will be grown to come to a 'Reversion Value (Adjusted for Growth)' used as the reversion value in the ground lease present value calculation.
+Reversion Value (Adjusted for Growth) - Optional Input. The reversion value used in the ground lease present worth estimation. It is computed by taking the residential or commercial property worth web of any retenanting costs, and after that growing it by a development rate. The value is an optional input in the occasion you desire to tailor the reversion worth.<br>
+<br>Discount Rate - The discount rate at which to compute the present worth of the ground lease capital. Consider this discount rate as a hurdle 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 permits you to compute the unlevered (i.e. before financial obligation) returns of a ground lease investment. If you are considering acquiring 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 section consists of just one input. <br>
+<br>Ground Lease Investment Cost - This is the expense to obtain land with a ground lease. It ought to consist of the acquisition expense, together with any other due diligence, closing, and pursuit costs related to the financial investment.<br>
+<br>After entering the Ground Lease Investment Cost, the section computes 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 reliant on the analysis duration, payment schedule, and reversion worth.<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 investment. If you are considering buying a ground lease and intend to finance the purchase, it is within this area where you can enter the financial obligation assumptions, and see the corresponding return from that levered investment. The section includes three inputs.<br>
+<br>Ground Lease Permanent Loan Amount LTV- Enter the loan-to-value of the ground lease mortgage, and the design will calculate the loan quantity.
+- Annual Rates Of Interest - The yearly rate to be paid on the mortgage. Note that the model presently only enables an interest-only loan.
+- Interest-Only Payment (Annual vs. Monthly) - Enter whether the mortgage payment will be due month-to-month or annually.<br>
+<br>After going into the financial obligation presumptions for the ground lease financial investment, the area computes 5 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>Similar to the unlevered analysis, the resulting returns are extremely based on the analysis period, payment schedule, and reversion worth. The quantity and rate of the financial obligation will likewise greatly drive the levered return. And as a suggestion, in the meantime the design just enables financial obligation with interest-only payments and a balloon at the end of the analysis duration.<br>
+<br>Section 6 - Ground Lease Returns (Levered)<br>
+<br>The final section is where backend inputs utilized in the numerous information recognition lists are found. Unless you intend to customize the design, there is no reason to alter the worths in this area.<br>
+<br>Section 7 - Data Validation<br>
+<br>Video Walkthrough - Using the Ground Lease Valuation Model<br>
+<br>In addition to the written guidance above, I've assembled a short video that walks you through the numerous sections of the design. Note that this video is based on v1.0 of the design.<br>
+<br>Download the Ground Lease Valuation Model<br>
+<br>To make this model accessible to everyone, it is used on a "Pay What You're Able" basis without any minimum (go into $0 if you 'd like) or maximum (your support helps keep the content coming - normal genuine estate assessment models offer for $100 - $300+ per license). Just go into a cost together with an email address to send out 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 provide our models on this basis, please connect to either Mike or Spencer.<br>
+<br>We routinely upgrade the design (see variation notes). Paid contributors to the model 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 'Flying 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 show more precise 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 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 worths.
+- Added additional notes under 'Quick Start Guide' to clarify typical confusion around start dates for various sections.
+- 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 'Flying Start Guide' to supply a tutorial for using the model.
+- Renamed 'Lease Increase Method' to 'Lease Payment Increase Method' for clarification purposes.
+- Renamed 'Ground Lease Reversion Value' to 'Current Fee Simple Value and Ground Lease Reversion Value'.
+- Added 'Investment Term' assumption to permit investor to examine returns on an Analysis Period shorter than the Ground Lease term - Renamed 'Investment Timing' to 'Valuation Timing' to separate in between assessment and investment returns.
+- Renamed 'Analysis Start Date' to 'Valuation Start Date', 'Analysis Period' to 'Valuation Period', and 'Analysis End' to 'Valuation End'.
+- Updated heading format to better differentiate 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 coworkers for industrial realty. He has 20+ years of CRE experience and has actually financed over $30 billion in genuine estate across leading institutional companies.<br>