I should have started out by asking you what was the intended use and what property rights are you appraising; my bad for not doing that.
I'm assuming you are valuing the property based on the leased fee rights of the owner. I'll assume that this is for a commercial loan of some kind (the loan part isn't that important; the property rights being appraised is critical).
You have long term tenants with below market rents. I'm presuming that they have some time to run on their leases (ergo, the rent loss calculation).
You indicated you completed the IA of the subject as-stabilized. "As-stablized" means market rents and market vacancy. You came up with a value. This would reflect the fee simple value in nearly all cases.
However, your subject, under its current lease terms and assuming you are valuing the owner's interest, is leased fee. The rents are below market; therefore, some rent loss analysis has to be performed to account for the difference between what the stabilized value indicated and what actually exists. When you complete that analysis, you deduct it from the stabilized value (the fee simple value) and what you arrive at is the subject's leased fee value based on the specific terms/conditions of the leases that are in place. That adjustment is a property rights adjustment; it accounts for the differences in the rights being appraised: stabilized (fee simple) vs. as-is (leased fee). Since your rents are below market, it is a deduction. If your rents are above market, it would be an addition. The process of analyzing the rent differential is very similar but a positive (excess rent) situation would be handled differently in the discounting than a negative (deficit rent) situation.
In the sales comparison approach, unless you found similar properties with a similar scenario (they had the same level of deficit rent and that deficit would be in-place for the same duration as the subject), you are likely going to need to make a property rights adjustment to those sales to account for the lower contract rents. Good luck finding sales comps with the same leases/contract rent conditions as the subject.
What many do in such a case is the same thing you did in the IA. You value the subject in the sales comparison approach as-if it were stabilized (market rents and vacancy) and then apply the same adjustment that was applied in the IA to the SCA. In fact, many will conclude the as-stabilized value (reconcile the approaches) and then apply the adjustment to that value-point to arrive at the final value opinion of the leased fee rights being appraised.
Unless you've accounted appropriately for the subject's below market rents in the sales comparison approach vs. the comparables, you are going to have an unreliable value indication.
Does that make sense?
