commit d1078b6d432997b19d7ddf9e587b8eb9e57971cf Author: anniszfm669621 Date: Sat Jun 21 03:14:36 2025 +0800 Add 'Ground Lease Valuation Model (Updated Mar 2025).' 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..52bf536 --- /dev/null +++ b/Ground-Lease-Valuation-Model-%28Updated-Mar-2025%29..md @@ -0,0 +1,104 @@ +
The subject of ground leases has shown up a number of times in the previous couple of weeks. Numerous A.CRE readers have actually emailed to ask for a purpose-built Ground [Lease Valuation](https://seasiderealestate.al) Model. And I remain in the procedure of [producing](https://areafada.com) an Advanced Concepts Module for our property monetary modeling Accelerator program covering the mechanics of modeling ground leases. So I thought now would be an [excellent](https://fashionweekvenues.com) time to share my Ground Lease [Valuation Model](https://akarat.ly) in Excel.
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This design can be utilized standalone, or [contributed](https://oyomandcompany.com) to your existing property-level design. In any case, it is useful for both [landowners](https://ffrealestate.com.do) wanting to size a ground lease payment or leasehold owners wanting to understand the value of the leasehold (i.e. improvements) relative to the [cost simple](https://chaar-realestate.com) interest (i.e. land).
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Excel design for assessing a ground lease
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What is a Ground Lease and Leasehold Interest?
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If you unknown with the of [Ground Lease](https://theeasternacres.com) and Leasehold Interest, I'll refer you to the definitions in our Glossary of CRE Terms:
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[Ground lease](https://www.fidelityrealestate.com) - "A lease structure where a genuine estate financier leases the land (i.e. ground) only. In the case of a ground lease, generally one celebration owns the land (i.e. fee simple interest) while a different party owns the enhancements (i.e. leasehold interest). In many cases, the owner of the land rents the land to the owner of the enhancements for a prolonged time period (20 - 100 years)."
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[Leasehold](https://aurorahousings.com) Interest - "In realty, a leasehold interest describes a structure where a private or entity (lessee) rents the land (i.e. ground lease) from the fee basic owner (lessor) of the land for a prolonged time period. The lessee of a leasehold estate will generally own the improvements on the land and use 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 rent to the lessor for usage of the land. At the end of the ground lease term, the lessee must return use of the land, and any improvements thereon, to the land owner.
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Ground leases prevail to prime areas, where landowners don't necessarily wish to offer but where they may not have the know-how (or desire) to run. Thus, they lease the land to someone who owns and runs the enhancements on the land, and get a ground lease payment in return. You see this on a regular basis with workplace structures in the downtown core of major cities.
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Another case where you'll run into ground leases remain in retail shopping mall. Oftentimes, popular retail occupants choose to build and own their space however the designer doesn't always wish to offer the land. So, the retail occupant will concur to rent the ground for 40+ years and develop their own structure on the leased land. Banks, nationwide dining establishments in outparcels, and big outlet store are examples of tenants that often 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 included on one worksheet. This is intentional to allow you to insert this design into your own property-level model to make it simpler to include a ground lease element to your analysis.
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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 model, in addition to find important links connected to the design.
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The Ground Lease worksheet is broken up into 7 areas as outlined and described listed below:
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The Residential or commercial property Description area consists of 5 inputs associated to the financial investment. These inputs are:
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SF/M2 - In cell I3 go into whether the step of size remains in square feet (SF) or square meters (M2). +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 denote that the financial investment is for the charge simple 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 calculated 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. enhancements) to be owned by a separate person or entity. So for example, you may be considering acquiring the land on which a Target Superstore is developed. Target owns the building and is leasing the land for some prolonged amount of time. The total rentable location of the building 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 consists of four needed inputs and one optional inputs. These inputs relate to the chronology of the ground lease and investment.
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Ground Lease Start Date - The month and year when the ground lease began. This need to 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 beginning 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 design then determines the Ground Lease End Date (i.e. maturity date). +Analysis Start Date - The month and year that the analysis is to start. This usually is equivalent to the Next Ground Lease Payment date, although the model was developed 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 the event you're examining a shorter hold period, merely change the orange font cell I17 to the preferred analysis end date.
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Section 2 - Investment Timing
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The Ground Lease Terms section consists of business regards to the ground lease, including payment quantity, frequency, and rent boosts. This section consists of five inputs plus the alternative to by hand model the lease payment amounts.
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Initial Payment Amount - The quantity of the very first lease payment. Depending upon the payment frequency input (see below), this quantity might be for a yearly or month-to-month payment. +Lease Increase Method - The approach utilized to model rent boosts. This can either be: None - No rent increases. +% Inc. - A portion boost over the previous lease quantity. +$ Inc. - A quantity boost over the previous lease amount. +Custom - Manually model the lease payment quantities by year. If Custom is chosen, the annual lease payment amounts in row 26 end up being inputs for you to manually change (i.e. typeface turns blue). Important Note: If you select Custom and start to change the annual rent payment quantities in row 26, there is no other way 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 compute the reversion worth 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 separated into 3 subsections, with 5 inputs and one optional input across the 3 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 to put it simply, a normal direct cap appraisal of a realty financial investment. Inputs include: Current Net Operating Income (Annual Before Ground Lease Payment) - Enter the yearly net operating earnings derived from leasing the enhancements, 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 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 return 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 expense (i.e. before inflation). Retenanting might include easy leasing costs, it might include restoration and leasing, or it may include taking apart the building and rebuilding something brand-new. The concept is to reach a 'Net Reversion Value (Nominal)' after accounting for the cost to retenant. +Reversion Growth Rate (Annually) - All of the above calculations are done before accounting for inflation (i.e. growth). Enter a growth rate here, and the 'Net Reversion Value (Nominal)' will be grown to reach a 'Reversion Value (Adjusted for Growth)' utilized as the reversion value in the ground lease present value computation. +Reversion Value (Adjusted for Growth) - Optional Input. The reversion worth utilized in the ground lease present worth calculation. It is calculated by taking the residential or commercial property value internet of any retenanting expenses, and then growing it by a development rate. The value is an optional input in the event you desire to personalize the reversion value.
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Discount Rate - The discount rate at which to calculate today value of the ground lease money circulations. Consider this discount rate as a difficulty rate (i.e. necessary rate of return) for a ground lease investment.
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Section 4 - Valuation (Fee and Leasehold)
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The Ground Lease Returns (Unlevered) area enables you to compute the unlevered (i.e. before debt) returns of a ground lease investment. If you are thinking about acquiring a ground lease, it is within this section where you can enter your acquisition/investment cost, and see the corresponding returns from that financial investment. The area consists of just one input.
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Ground Lease Investment Cost - This is the expense to acquire land with a ground lease. It must consist of the acquisition expense, together with any other due diligence, closing, and pursuit costs related to the financial investment.
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After getting in 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 extremely reliant 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) section permits you to determine the levered (i.e. with financial obligation) returns of a ground lease investment. If you are considering purchasing a ground lease and mean to finance the purchase, it is within this section where you can go into the financial obligation assumptions, and see the matching return from that levered financial investment. The section consists of 3 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 compute the loan amount. +- Annual Rate Of Interest - The annual rate to be paid on the mortgage. Note that the design presently just enables an interest-only loan. +- Interest-Only Payment (Annual vs. Monthly) - Enter whether the mortgage payment will be due regular monthly or every year.
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After entering the financial obligation presumptions for the ground lease financial investment, the area determines 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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Similar to the unlevered analysis, the resulting returns are extremely reliant on the analysis period, payment schedule, and reversion value. The amount and rate of the financial obligation will likewise greatly drive the levered return. And as a pointer, in the meantime the model just enables financial obligation 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 final section is where backend inputs used in the various data recognition lists are discovered. Unless you plan to modify the design, there is no reason to alter the worths in this area.
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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 written guidance above, I've put together a short video that strolls you through the numerous sections of the design. Note that this video is based upon v1.0 of the model.
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Download the Ground Lease Valuation Model
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To make this design accessible to everyone, it is provided on a "Pay What You're Able" basis without any minimum (get in $0 if you 'd like) or maximum (your assistance helps keep the content coming - normal genuine estate valuation models 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 offer our designs on this basis, please connect to either Mike or Spencer.
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We regularly update the model (see variation notes). Paid contributors to the model receive a new download link by means of email each time the design is upgraded.
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Version Notes
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Version 2.33
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- Rewrote 'Flying Start Guide' with updates and for improved readability +- Updates to placeholder worths +- Fix to misspelled word on Version tab
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Version 2.32
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- Removed redundant information in E17: G17. +- Updated I22 to show more accurate years of term staying. +- Updates to placeholder values
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Version 2.31
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- Further revisions to logic in I59
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Version 2.3
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- Fixed concern where the OFFSET() range 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 fix!). +- Updates to placeholder values
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Version 2.1
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- Updates to placeholder values. +- Added extra notes under 'Flying start Guide' to clarify common confusion around start dates for different sections. +- 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 clarification purposes. +- Renamed 'Ground Lease Reversion Value' to 'Current Fee Simple Value and Ground Lease Reversion Value'. +- Added 'Investment Term' assumption to enable financier to analyze returns on an Analysis Period much shorter than the Ground Lease term - Renamed 'Investment Timing' to 'Valuation Timing' to distinguish in 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 better separate between Valuations areas and Investment Returns sections. +- Adjusted return formulas to make dynamic 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 colleagues for commercial genuine estate. He has 20+ years of CRE experience and has financed over $30 billion in real estate across leading institutional firms.
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