Fee Simple vs Leased Fee

[ETex2]

I disagree - No reference to fee simple was necessary - he simply needed to make clear that the contract rent was 40x that of market rent, which significantly increased the value of the leased fee interest.

The fact that the lease if obviously not arms-length has no bearing on how to treat this situation?

 

[Pittsburgh Pete]

The fact that the lease if obviously not arms-length has no bearing on how to treat this situation?

Actually the hosebag stated that the leases were arm's length as his definition of arm's length was that they were "fair and reasonable."

Have the complaint forms on my desk--haven't gotten around to filling them out.

 

[Pittsburgh Pete]

I disagree - No reference to fee simple was necessary - he simply needed to make clear that the contract rent was 40x that of market rent, which significantly increased the value of the leased fee interest.

Over what? Your statement in isolation is a "duh!"

 

[Fee4me]

That should also be noted in the analysis of the lease terms and conditions and the affect that would have on the value of the leased fee interest (since we are assuming we are appraising only the leased fee interest at the clients request.) It may have been better for arguements sake to keep that element out for now. So lets assume that we have an arms length lease slightly above market with several years remaining. Under rule SR 1-4d (my interpretation), you are required to state that the contract rent was found above market and that it positively affects the value of the leased fee interest.

The point I was trying to make earlier was that the rule is in regards to the appraisal of a leased fee or leasehold interest - had the rule intended you require a comparison of the leased fee or leasedhold values and the value of the fee simple interest - the rule would simply be: you cannot appraise a leased fee or leasehold interest without also valuing the fee simple interest.

 

[Fee4me]

That's the point exactly - While it may be a "Duh!" to you - it may not be a "Duh!" or obvious to the reader or general public - which is why you must explicitly state it.

 

[Pittsburgh Pete]

But the above market rents establish the value of the leased fee interest. Your statement would mean absolutely nothing.

Your have a property with above market rents that you value at $1,500,000 (if the property were rented at market it would be worth $1,000,000--equal to the fee simple value). Wouldn't your lending client want to know that the leases in place increase the leased fee value some $500,000 above the fee simple value so that they might structure their loan accordingly and take into account the level of risk inherent in such a situation? Sorry--another question. But extremely relevant, I think.

 

[Pittsburgh Pete]

P.S. How would you do a cost approach in the valution of a leased fee interest? You wouldn't or couldn't given your stance.

 

[Fee4me]

The cost approach would not be applicable or necessary to produce a credible opinion of value when appraising only the leased fee interest.

Not sure what you mean by couldn't give your stance?

 

[Fee4me]

I've got to get some work done. I'll check back later. Been fun Pete!

 

[Ken B]

Round 1 goes to the contestant from Pittsburgh.