Fee Simple vs. Leased Fee Interest

[leasedfee]

If you are doing leased fee, you will do contract rents in your income cap approach. If you are doing fee simple, you will apply market rents in your income cap approach.

Respectfully, no. The capitalizing of contract rents has the propensity of extending into perpetuity the positive/negative leasehold, unless the overall rate is adjusted and that is somewhat arbitrary. Better to capitalize at-market rents and then deduct for the positive/negative leasehold for its duration.

 

[Zoe]

Respectfully, no. The capitalizing of contract rents has the propensity of extending into perpetuity the positive/negative leasehold, unless the overall rate is adjusted and that is somewhat arbitrary. Better to capitalize at-market rents and then deduct for the positive/negative leasehold for its duration.

Yes, but these are very short contracts. That's why I say use all three approaches. That's why I would say comparable rental properties are huge in the analysis. More so using all three approaches.

 

[Zoe]

I would want buyer's projections or would not complete with market value as value definition and fee simple as interests being appraised. If buyer rent estimates are similar to current rents and comparables are similar. I'm okay. I won't hang my hat on the income cap approach alone.

 

[Zoe]

The OP is trying to hang his or her hat on income cap alone. Don't do that.

 

[Zoe]

If you have a govt contract or a lease for 10-20 years, put almost all your wait on the income approach.

 

[Terrel L. Shields]

put almost all your wait on the income approach.

hours and hours of wait...like when you go to the DOMV to get car tags

Sales if you got them. They are trying to buy the Fee Simple. If the rents are short term, or rental terms have sell out options, then the Fee Simple will be equal to the leased fee. If the leases are multi-year, then that is something else. I bet they are not.

 

[Zoe]

hours and hours of wait...like when you go to the DOMV to get car tags

Sales if you got them. They are trying to buy the Fee Simple. If the rents are short term, or rental terms have sell out options, then the Fee Simple will be equal to the leased fee. If the leases are multi-year, then that is something else. I bet they are not.

That's why I would want buyer's perspective more than anybody's perspective on their plans. H&B use could be impacted.

 

[Zoe]

Sounds like similar properties as comps for sales and rents are hard to come by. I don't know answer there. Maybe jump to another city. Idk. I would probably jump to another city. How many dentist could be doing what this dentist is doing? Idk

Idk the design or layout of the property. I am flying in the dark. I know one thing. Many dentist have a bunch of TI in their rent. I know that for sure. They either have to buy the equipment or it is in TI and in rent. That stuff is not cheap. My wife is dental hygienist and daughter is Doctor of dentristry and is specializing in pediatric dentistry. That stuff is not cheap.

Analyzing leases helps you a bunch there. Be careful. I really don't know how much TI could be included in rent for the dental space. But it has to be taken into consideration. It could blow the rent out the roof.

Go there if you have no good rent comps. Do it on Tenant improvements and make adjustments. Sales or cost approach would support your final conclusion. You would need sales of dentist office or similar to compete in sales comparison approach. You can make adjustment in sales comparison approach for TI. Ask dentist what TI is worth to them? Buyer may not be a dentist. Ask buyer what the TI is worth to them?

You'll be fine.

 

[Zoe]

Back to leased fee vs fee simple, I would do fee simple based on all I know. I would pretty much say existing leases have no impact on market value opinion. However I do not know your market at all.

You have me in a pickle because I can't review existing leases or buyer plans. Just forget everything I have posted. Just do it.

Please communicate with seller and buyer in the process. You will be happy you did.

 

[Zoe]

Still back to leased fee vs fee simple? You'll figure it out.