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Ground Lease Provisions. A Case Study for Leasehold Valuation

Author

Listed:
  • Don GUARINO
  • Cameron CHEHRAZI
  • Brad A. BOHL

Abstract

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. The following sections will discuss the nuances of the case and offer a technique to estimate the appropriate yield rate and value. This case considers the application of conventional appraisal techniques to a segment of the real estate market that is thinly traded.

Suggested Citation

  • Don GUARINO & Cameron CHEHRAZI & Brad A. BOHL, 2014. "Ground Lease Provisions. A Case Study for Leasehold Valuation," The Valuation Journal, The National Association of Authorized Romanian Valuers, vol. 9(2), pages 122-137.
    • Handle: RePEc:vaj:journl:v:9:y:2014:i:2:p:122-137
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    Cited by:

    1. Maria Trojanek & Marcin Anholcer & Audrius Banaitis & Radoslaw Trojanek, 2018. "A Generalised Model of Ground Lease Pricing," Sustainability, MDPI, vol. 10(9), pages 1-21, September.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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