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Old 11-07-2011, 07:19 AM
UpstateNY UpstateNY is offline
 
Join Date: Mar 2006
Location: Upstate NY
State: New York
Professional Status: Certified General Appraiser
Posts: 31
Default Ground Lease Adjustment

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?
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Old 11-08-2011, 09:44 AM
skx172 skx172 is offline
 
Join Date: Mar 2008
State: New York
Professional Status: Appraiser Trainee
Posts: 30
Default

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.








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Originally Posted by UpstateNY View Post
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?
  #3  
Old 11-08-2011, 05:32 PM
UpstateNY UpstateNY is offline
 
Join Date: Mar 2006
Location: Upstate NY
State: New York
Professional Status: Certified General Appraiser
Posts: 31
Default

Quote:
Originally Posted by skx172 View Post
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.
That's what I did, I guess I didn't explain it clearly, thanks though...
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