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Ground Lease Adjustment

Discussion in 'Commercial/Industrial Appraisals' started by UpstateNY, Nov 7, 2011.

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  1. UpstateNY

    UpstateNY New Member

    0
    Mar 24, 2006
    Professional Status:
    Certified General Appraiser
    State:
    New York
    Subject is a 40,000 SF office building subject to a ground lease with 60 years remaining. Leased to a credit tenant with 11 years remaining on lease, with subsequent options. The ground lease has minimal "bumps" per year, ($1,000 per year). The building rent is stable for the next 11 years. Of course I ran a DCF and an Income Approach, but want to back them up with a SCA. Located in a small market, so no recent sales on ground leases. Used 3 sales of fee simple transactions, and ran a DCF on the next 10 years of the ground lease expense to use as a negative whole dollar adjustment from the fee simple sales. The subsequent value comes into line with the income approaches, just looking here for some validation. Makes sense? Or do I need another cup of coffee this Monday morning?
     
  2. skx172

    skx172 New Member

    0
    Mar 5, 2008
    Professional Status:
    Appraiser Trainee
    State:
    New York
    Sound ok but I ask why only 10 years if the ground lease runs for another 60. I would get to the adjustment by capitalizing the ground rent at a rate that is safer(lower) than the cap on the leasehold interest. The caped ground rent would get you to a value of the leased fee position.

    Then i would do a sales comparison for a fee position from which i would deduct the value of the ground lease.








     
  3. UpstateNY

    UpstateNY New Member

    0
    Mar 24, 2006
    Professional Status:
    Certified General Appraiser
    State:
    New York
    That's what I did, I guess I didn't explain it clearly, thanks though...
     
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