Ground Lease

[River Runner]

My client is wanting a yearly ground lease rate for a 7-acre vacant tract of land, for a potential light industrial use. Ground leases for retail, banks, and fast food are available but ground leases for acreage tracts/LI are virtual non-existent in the area.

Through discussion with other appraisers and some online research, one methodology appears to be simply concluding the fee simple value of the land and multiplying it by a reasonable cap rate.

Thoughts/opinions?

 

[Gobears81]

Your approach sounds reasonable, as finding comparable rentals for ground leases would be a challenge for multiple reasons.

Something to keep in mind on the cap rate side - a property may be leased at the equivalent of X cap rate, but then sell for a lower cap rate. If you do consider sales of ground leases in support of your cap rate, consider atypical tenant strength or lease terms as factors that could result in understating the ground lease rate.

 

[Zephyr999]

1. As a proxy, might look at airports for hanger ground leases. Railroads can also have buildings constructed by others on ground lease.
2. Co-Star puts ground leases in as land sales...PITA to find but they are there.
3. Call a broker or 3 that deal in ground leases...ask them for leads.

 

[River Runner]

1. As a proxy, might look at airports for hanger ground leases. Railroads can also have buildings constructed by others on ground lease.
2. Co-Star puts ground leases in as land sales...PITA to find but they are there.
3. Call a broker or 3 that deal in ground leases...ask them for leads.

I found some on Costar - mostly high-end retail. We have a large network of appraisers and brokers that share data but I got very little response. Thanks.

 

[BChurchey]

Market Value of the Land As Is based on development rights - then back into the lease amount from there

Industrial land doesnt generally have ground leases like commercial

 

[Sid Holderly]

In agricultural areas of cropland the solar leases (these are large tracts) are 2.5 to 3 times the farm land cast rent rate. The highest rate of return to the landowner is the solar lease that is 30 years with an approximate 2% per year increase and an option for lease extension for another 20 to 30 years. This far exceeds farm land incomes to landowners.