Ground Lease Provisions- A Case Study for Leasehold Valuation

摘要

This case study examines an office building subject to a ground lease to show the difficulties that arise in the valuation of a negative leasehold interest and suggests a course of action that can be followed to reach a credible estimate of value. The subject of the case is encumbered by an above-market ground lease payment and restrictions on ownership. The suggested valuation methodology is by no means a perfect and all-inclusive treatise of the concept but one that will guide practitioners in the right direction. The methodology applies conventional appraisal techniques while considering the various estates and how they interact with each other. In addition, a framework is presented to estimate investor yield expectations for types of real estate that are thinly traded by segmenting income and building up on the risk-free rate.