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Add Ground Lease Valuation Model (Updated Mar 2025).

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<br>The topic of ground leases has come up numerous times in the past couple of weeks. Numerous A.CRE readers have actually [emailed](https://turk.house) to ask for a purpose-built Ground Lease Valuation Model. And I'm in the [procedure](https://areafada.com) of [developing](https://oferte.cazarecostinesti.ro) an Advanced Concepts Module for our realty monetary modeling Accelerator program the mechanics of [modeling ground](https://donprimo.ph) leases. So I believed now would be an [excellent](https://inpattaya.net) time to share my Ground Lease Valuation Model in Excel.<br>
<br>This design can be utilized standalone, or contributed to your existing property-level design. In any case, it is valuable for both landowners wanting to size a [ground lease](https://thailandproperty.com) payment or leasehold owners wanting to comprehend the value of the leasehold (i.e. enhancements) [relative](https://lc-realestatemz.com) to the [cost simple](https://www.qbrpropertylimited.com) interest (i.e. land).<br>
<br>Excel design for [examining](https://whitestarre.com) a ground lease<br>
<br>What is a Ground Lease and Leasehold Interest?<br>
<br>If you not familiar with the concepts of Ground Lease and Leasehold Interest, [I'll refer](https://michiganhorseproperty.com) you to the definitions in our Glossary of CRE Terms:<br>
<br>[Ground lease](https://bomja.ir) - "A lease structure where a genuine estate investor rents the land (i.e. ground) just. When it comes to a ground lease, usually one party owns the land (i.e. charge basic interest) while a separate celebration owns the enhancements (i.e. leasehold interest). For the most part, the owner of the land leases the land to the owner of the enhancements for an extended period of time (20 - 100 years)."<br>
<br>[Leasehold](https://ladygracebandb.com) Interest - "In property, a leasehold interest describes a structure where a private or entity (lessee) rents the land (i.e. ground lease) from the charge simple owner (lessor) of the land for an extended amount of time. The lessee of a leasehold estate will typically own the enhancements on the land and utilize the land and improvements as if the lessee were the owner of the land. During the regard to the ground lease, the lessee will pay lease to the lessor for usage of the land. At the end of the ground lease term, the lessee must return use of the land, and any improvements thereon, to the land owner.<br>
<br>Ground leases prevail to prime locations, where landowners do not necessarily wish to sell however where they might not have the know-how (or desire) to operate. Thus, they lease the land to someone who owns and operates the enhancements on the land, and receive a ground lease payment in return. You see this quite typically with office complex in the downtown core of significant cities.<br>
<br>Another case where you'll run into ground leases remain in retail shopping mall. Oftentimes, popular retail tenants choose to build and own their area but the designer doesn't always desire to sell the land. So, the retail tenant will concur to lease the ground for 40+ years and build their own structure on the leased land. Banks, nationwide dining establishments in outparcels, and large department stores are examples of renters that frequently consent to this structure.<br>
<br>Quick Note: Not interested in DIY analysis? Consider dealing with A.CRE Consulting to handle your bespoke modeling job.<br>
<br>How to Use the Ground Lease Valuation Model<br>
<br>All sections of the Ground Lease Valuation Model are contained on one worksheet. This is intentional to enable you to insert this model into your own property-level model to make it simpler to include a ground lease component to your analysis.<br>
<br>All analysis is carried out on the tab entitled 'Ground Lease'. A 'Version' tab is likewise included where you can view a change log for the design, along with discover important links associated with the design.<br>
<br>The Ground Lease worksheet is separated into 7 areas as detailed and described below:<br>
<br>The Residential or commercial property Description section consists of 5 inputs related to the investment. These inputs are:<br>
<br>SF/M2 - In cell I3 go into whether the procedure of size is in square feet (SF) or square meters (M2).
Residential or commercial property Name - Name of the financial investment. It prevails in realty to add the name of the financial investment with (Ground Lease) to signify that the financial investment is for the charge easy interest in land with a ground lease.
Address - Address, city, state/province, zip/postal code, and country.
Land Size - Total SF or M2 of land. The number of acres or hectares will than automatically be determined in cell E6.
Leasehold Net Rentable Area - Total net rentable area in SF or M2 of the physical enhancements (i.e. the leasehold). The land is presumed to be owned by one individual or entity, and the leasehold interest (i.e. improvements) to be owned by a different person or entity. So for instance, you may be considering getting the land on which a Target Superstore is developed. Target owns the structure and is renting the land for some prolonged period of time. The overall rentable area of the structure is the 'Leasehold Net Rentable Area'.<br>
<br>Section 1 - Residential Or Commercial Property Description<br>
<br>The Investment Timing section consists of four required inputs and one optional inputs. These inputs are associated to the chronology of the ground lease and financial investment.<br>
<br>Ground Lease Start Date - The month and year when the ground lease began. This should also be the month and year of the very first payment.
Next Ground Lease Payment - The month and year when the next ground lease payment is due.
Ground Lease Length (Years) - The length of the ground lease in years from ground lease beginning through ground lease maturity. This is the overall length of the ground lease, not the number of years staying. The optimum length is 100 years. Based upon the ground lease length, the design then computes the Ground Lease End Date (i.e. maturity date).
Analysis Start Date - The month and year that the analysis is to begin. This usually is equal to the Next Ground Lease Payment date, although the design was built to permit analysis to begin prior to the Next Ground Lease Payment date.
Analysis End Date - An optional input, this is by default the Ground Lease End Date. In case you're examining a shorter hold duration, merely alter the orange font cell I17 to the preferred analysis end date.<br>
<br>Section 2 - Investment Timing<br>
<br>The Ground Lease Terms section includes the organization regards to the ground lease, consisting of payment amount, frequency, and rent boosts. This area consists of five inputs plus the alternative to manually design the lease payment quantities.<br>
<br>Initial Payment Amount - The quantity of the very first lease payment. Depending on the payment frequency input (see listed below), this amount may be for an annual or month-to-month payment.
Lease Increase Method - The approach utilized to design lease increases. This can either be: None - No rent increases.
% Inc. - A percentage boost over the previous lease amount.
$ Inc. - A quantity boost over the previous rent amount.
Custom - Manually model the rent payment amounts by year. If Custom is chosen, the annual rent payment amounts in row 26 end up being inputs for you to by hand change (i.e. font style turns blue). Important Note: If you choose Custom and start to change the annual lease payment quantities in row 26, there is no other way to revert back to another Lease Increase Method.<br>
<br>Section 3 - Ground Lease Terms<br>
<br>It is within the Valuation (Fee and Leasehold) section where you determine the reversion value of the land (i.e. ground lease), the present worth of the land (i.e. ground lease), and the imputed value of the leasehold interest. This section is separated into 3 subsections, with five inputs and one optional input across the three subsections.<br>
<br>Ground Lease Reversion Value - Within this subsection you model the value of the residential or commercial property as if there was no ground lease. Or to put it simply, a common direct cap valuation of a property investment. Inputs consist of: Current Net Operating Income (Annual Before Ground Lease Payment) - Enter the yearly net operating earnings originated from leasing the improvements, special of any ground lease payment.
Market Cap Rate - The cap rate for the residential or commercial property, as if no ground lease was consisted of. The idea being to come to a value of the residential or commercial property before representing the ground lease.
Retenanting Costs (Nominal) - At the end of the ground lease term, the ground lessor will get back the land plus any improvements on the land. What will it cost (i.e. Retenanting) to retenant the residential or commercial property in today's expense (i.e. before inflation). Retenanting might consist of basic leasing costs, it may consist of renovation and leasing, or it might consist of tearing down the structure and reconstructing something new. The concept is to reach a 'Net Reversion Value (Nominal)' after accounting for the cost to retenant.
Reversion Growth Rate (Each Year) - All of the above computations are done before accounting for inflation (i.e. development). Enter a development rate here, and the 'Net Reversion Value (Nominal)' will be grown to arrive at a 'Reversion Value (Adjusted for Growth)' utilized as the reversion worth in the ground lease present value estimation.
Reversion Value (Adjusted for Growth) - Optional Input. The reversion value used in the ground lease present worth calculation. It is determined by taking the residential or commercial property value net of any retenanting costs, and then growing it by a development rate. The value is an optional input in case you wish to personalize the reversion value.<br>
<br>Discount Rate - The discount rate at which to determine the present value of the ground lease capital. Consider this discount rate as an obstacle rate (i.e. required rate of return) for a ground lease financial investment.<br>
<br>Section 4 - Valuation (Fee and Leasehold)<br>
<br>The Ground Lease Returns (Unlevered) section enables you to calculate the unlevered (i.e. before financial obligation) returns of a ground lease investment. If you are thinking about buying a ground lease, it is within this area where you can enter your acquisition/investment cost, and see the matching returns from that financial investment. The section consists of just one input. <br>
<br>Ground Lease Investment Cost - This is the expense to obtain land with a ground lease. It needs to consist of the acquisition expense, together with any other due diligence, closing, and pursuit expenses associated with the investment.<br>[wordreference.com](http://forum.wordreference.com/threads/enter-vs-enter-into.1867322)
<br>After getting in the Ground Lease Investment Cost, the area determines five return metrics:<br>
<br>- Unlevered Internal Rate of Return
- Unlevered Equity Multiple
- Net Profit
Average Rate of Return
- Average Free-and-Clear Return<br>
<br>Note that the resulting returns are highly depending on the analysis period, payment schedule, and reversion worth.<br>
<br>Section 5 - Ground Lease Returns (Unlevered)<br>
<br>The Ground Lease Returns (Levered) area enables you to determine the levered (i.e. with financial obligation) returns of a ground lease financial investment. If you are thinking about purchasing a ground lease and mean to finance the purchase, it is within this area where you can go into the debt presumptions, and see the matching return from that levered investment. The area consists of 3 inputs.<br>
<br>Ground Lease Permanent Loan Amount LTV- Enter the loan-to-value of the ground lease mortgage, and the model will compute the loan quantity.
- Annual Rate Of Interest - The annual rate to be paid on the mortgage. Note that the model currently just enables an interest-only loan.
- Interest-Only Payment (Annual vs. Monthly) - Enter whether the mortgage payment will be due monthly or every year.<br>
<br>After getting in the debt presumptions for the ground lease financial investment, the section determines five return metrics:<br>
<br>- - Levered Internal Rate of Return
- Levered Equity Multiple
- Net Profit
- Average Rate of Return
- Average Cash-on-Cash Return<br>
<br>Just like the unlevered analysis, the resulting returns are extremely based on the analysis duration, payment schedule, and reversion value. The quantity and rate of the debt will likewise greatly drive the levered return. And as a pointer, in the meantime the model only enables financial obligation with interest-only payments and a balloon at the end of the analysis duration.<br>
<br>Section 6 - Ground Lease Returns (Levered)<br>
<br>The final area is where backend inputs used in the various information recognition lists are discovered. Unless you mean to customize the model, there is no factor to change the worths in this area.<br>
<br>Section 7 - Data Validation<br>
<br>Video Walkthrough - Using the Ground Lease Valuation Model<br>
<br>In addition to the written assistance above, I have actually assembled a short video that strolls you through the various areas of the design. Note that this video is based upon v1.0 of the design.<br>
<br>Download the Ground Lease Valuation Model<br>
<br>To make this design available to everyone, it is used on a "Pay What You're Able" basis with no minimum (go into $0 if you 'd like) or optimum (your support helps keep the content coming - typical property valuation models sell for $100 - $300+ per license). Just go into a price together with an e-mail address to send out the download link to, and then click 'Continue'. If you have any concerns about our "Pay What You're Able" program or why we use our designs on this basis, please connect to either Mike or Spencer.<br>
<br>We routinely update the model (see version notes). Paid factors to the design get a brand-new download link through e-mail each time the design is upgraded.<br>
<br>Version Notes<br>
<br>Version 2.33<br>
<br>- Rewrote 'Flying Start Guide' with updates and for enhanced readability
- Updates to placeholder worths
- Fix to misspelled word on Version tab<br>
<br>Version 2.32<br>
<br>- Removed redundant information in E17: G17.
- Updated I22 to show more accurate years of term remaining.
- Updates to placeholder worths<br>
<br>Version 2.31<br>
<br>- Further modifications to reasoning in I59<br>
<br>Version 2.3<br>
<br>- Fixed problem where the OFFSET() variety in the optional formula for 'Reversion Value' (I59) was missing out on the last cell<br>
<br>Version 2.2<br>
<br>- Revised formula in M26: DG26 to solve for concern when payment is Monthly and not % Inc (thanks to Accelerator member JS for the repair!).
- Updates to placeholder worths<br>
<br>Version 2.1<br>
<br>- Updates to placeholder values.
- Added additional notes under 'Quick Start Guide' to clarify common confusion around start dates for different areas.
- Misc. formatting updates<br>
<br>Version 2.0<br>
<br>- Moved 'Analysis Start', 'Analysis Period', and 'Analysis End' inputs above Ground Lease dates for enhanced user experience.
- Added a 'Quick Start Guide' to offer a tutorial for utilizing the design.
- Renamed 'Lease Increase Method' to 'Lease Payment Increase Method' for clarification functions.
- Renamed 'Ground Lease Reversion Value' to 'Current Fee Simple Value and Ground Lease Reversion Value'.
- Added 'Investment Term' presumption to enable investor to analyze returns on an Analysis Period shorter than the Ground Lease term - Renamed 'Investment Timing' to 'Valuation Timing' to separate between valuation and financial investment returns.
- Renamed 'Analysis Start Date' to 'Valuation Start Date', 'Analysis Period' to 'Valuation Period', and 'Analysis End' to 'Valuation End'.
- Updated heading format to better differentiate between Valuations areas and Investment Returns sections.
- Adjusted return formulas to make vibrant to Investment Hold Period<br>
<br>Version 1.0<br>
<br>- Initial release<br>
<br>About the Author: Spencer Burton is Co-Founder and CEO of CRE Agents, an AI-powered platform training digital coworkers for commercial property. He has 20+ years of CRE experience and has actually underwritten over $30 billion in realty across leading institutional firms.<br>