Leased Fee or Fee Simple - That is the Question

[Pittsburgh Pete]

Personally, I would prefer the term external be used for tangible items, such as the 7-11 next door, and economic be used for intangibles, such as those related to an area's economy. Utilization of the word economic is, IMO, a misnomer when applied to tangible sources of obsolescence external to a subject property.

that reflects the subtle nuances of what are generally interchangeable terms. That's what I pointed out as well. Not sure if it's a misnomer as the condition affects the subject's "economics." However, I agree with your take although the definitions are identical.

 

[Joyce Potts]

This should be moved to the Xanax thread.

 

[PropertyEconomics]

My point was that economic conditions change .. they cure themselves ... no matter the property owner .. and yes I know the term external includes both economic and externalities I just personally believe they are best separated.

And frankly I could give a flying flip what the AI says about the issue ... its like I cannot have a thought that goes against that stogy organization? SERIOUSLY?

Its not an AI bashing thread ... you brought them into it ffor no real reason as best as I can tell except you wished to tout their superiority .. which I personally believe to be far from true as a total collection of appraisers.

 

[Pittsburgh Pete]

My point was that economic conditions change .. they cure themselves ... no matter the property owner .. and yes I know the term external includes both economic and externalities I just personally believe they are best separated.

And frankly I could give a flying flip what the AI says about the issue ... its like I cannot have a thought that goes against that stogy organization? SERIOUSLY?

Its not an AI bashing thread ... you brought them into it ffor no real reason as best as I can tell except you wished to tout their superiority .. which I personally believe to be far from true as a total collection of appraisers.

they publish the dictionary I was referencing. Careful about reading between lines--especially between lines where no text exists.

Don't think they're stodgy or even stogy, whatever that is.

Lighten up--go have some egg nog (I personally don't like egg nog--hoopefully you do) as your non-bashing seems to have you in a tizzy!

 

[ETex2]

I'd like to present a somewhat different scenario and get the various opinions of people here. Example:

Large multi-tenant shopping center is 80% leased as follows:
-30% long term leases over one year remaining

-10% leases that expire in less than one year (half at non-market rents)

-30% month-to-month tenants with no lease (half at non-market rents)

-30% vacant

Would you call it fee simple, leased fee, fee simple subject to existing leases, or something else?

 

[nstanbru]

I'd like to present a somewhat different scenario and get the various opinions of people here. Example:

Large multi-tenant shopping center is 80% leased as follows:
-30% long term leases over one year remaining

-10% leases that expire in less than one year (half at non-market rents)

-30% month-to-month tenants with no lease (half at non-market rents)

-30% vacant

Would you call it fee simple, leased fee, fee simple subject to existing leases, or something else?

I would call it leased fee.

 

[PropertyEconomics]

I think if part of a whole property is leased longer term .. the valuation is of the leased fee estate under market conditions as of the date of valuation.

 

[Roger Murdock]

And you are implying that this phrase - "fee simple subject to the short term leases in place", as used in post #17 of this thread, is also incorrect?

Yes. If it is "subject to" leases, then it is leased fee. No ifs, ands, or buts about it. Makes about as much sense as appraising a lot "as vacant, subject to the existing building".

 

[Roger Murdock]

Their impact on the value is somewhat transitory and typically minimal. Many would see that labeling it as leased fee gives too much credence to the minimal impact of the leases in place.

If so, that is based on a mistaken assumption that valuing the "leased fee" implies that the lease(s) have a significant value impact.

If you value a 300-unit apartment complex that is completely vacant save for one unit that has a lease expiring in a month, you are valuing the leased fee. If want to value it with complete disregard to the lease, you can specify that you are valuing the fee simple interest, and include a hypothetical condition that the lease does not exist.

 

[PropertyEconomics]

If so, that is based on a mistaken assumption that valuing the "leased fee" implies that the lease(s) have a significant value impact.

If you value a 300-unit apartment complex that is completely vacant save for one unit that has a lease expiring in a month, you are valuing the leased fee. If want to value it with complete disregard to the lease, you can specify that you are valuing the fee simple interest, and include a hypothetical condition that the lease does not exist.

A lease expiring in a month does not represent a "leased fee" particularly when 299 other units are vacant ... sorry I dont believe this to be a correct statement.
The income lasts for a month, high, low or at market .. what investor would care about that one lease??? You will note in my post I specified LONGER TERM .. that is key.
In the instance you describe you would appraise the fee simple interest.