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Add Ground Lease Valuation Model (Updated Mar 2025).

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<br>The subject of [ground leases](https://nearestate.com) has shown up several times in the past few weeks. Numerous A.CRE readers have emailed to ask for a purpose-built Ground Lease Valuation Model. And I'm in the process of [creating](https://jghills.com) an [Advanced Concepts](https://laculracilor.ro) Module for our property monetary modeling Accelerator [program](https://marakicity.com) covering the mechanics of [modeling ground](https://bomja.ir) leases. So I thought now would be a good time to share my Ground Lease Valuation Model in Excel.<br>[savills.co.uk](https://www.savills.co.uk/)
<br>This model can be utilized standalone, or included to your existing property-level model. Either method, it is handy for both [landowners](https://www.masercondosales.com) wanting to size a ground lease payment or leasehold owners aiming to comprehend the worth of the leasehold (i.e. improvements) relative to the charge basic interest (i.e. land).<br>
<br>[Excel design](https://overseas-realestate.com) for [examining](https://premiergroup-eg.com) a ground lease<br>
<br>What is a Ground Lease and Leasehold Interest?<br>
<br>If you unknown with the principles of [Ground Lease](https://theofferco.com) and Leasehold Interest, I'll refer you to the meanings in our of CRE Terms:<br>
<br>[Ground lease](https://winnerestate-souththailand.com) - "A lease structure where a real estate investor rents the land (i.e. ground) only. When it comes to a ground lease, normally one party owns the land (i.e. cost simple interest) while a separate party owns the enhancements (i.e. leasehold interest). For the most part, the owner of the land leases the land to the owner of the improvements for an extended amount of time (20 - 100 years)."<br>
<br>[Leasehold](http://app.vellorepropertybazaar.in) Interest - "In property, a leasehold interest describes a structure where a private or entity (lessee) leases the land (i.e. ground lease) from the fee basic owner (lessor) of the land for an extended time period. The lessee of a leasehold estate will generally own the improvements on the land and use the land and enhancements 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 use of the land. At the end of the ground lease term, the lessee must return usage of the land, and any enhancements thereon, to the land owner.<br>
<br>Ground leases are typical to prime areas, where landowners do not always want to offer but where they might not have the knowledge (or desire) to operate. Thus, they lease the land to someone who owns and operates the improvements on the land, and receive a ground lease payment in return. You see this on a regular basis with office complex in the downtown core of significant cities.<br>
<br>Another case where you'll encounter ground leases remain in retail shopping centers. Oftentimes, prominent retail renters choose to develop and own their area however the designer does not always wish to offer the land. So, the retail renter will consent to rent the ground for 40+ years and build their own structure on the rented land. Banks, national restaurants in outparcels, and big outlet store are examples of renters that often accept 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 consisted of on one worksheet. This is intentional to enable you to place this model into your own property-level model to make it much easier 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 consisted of where you can see a modification log for the model, along with discover important links connected to the design.<br>
<br>The Ground Lease worksheet is separated into 7 sections as described and discussed listed below:<br>
<br>The Residential or commercial property Description area consists of 5 inputs related to the investment. These inputs are:<br>
<br>SF/M2 - In cell I3 get in whether the procedure of size is in square feet (SF) or square meters (M2).
Residential or commercial property Name - Name of the investment. It prevails in genuine estate to append the name of the financial investment with (Ground Lease) to represent that the investment is for the fee basic interest in land with a ground lease.
Address - Address, city, state/province, zip/postal code, and nation.
Land Size - Total SF or M2 of land. The variety of acres or hectares will than automatically be calculated in cell E6.
Leasehold Net Rentable Area - Total net rentable area in SF or M2 of the physical improvements (i.e. the leasehold). The land is assumed to be owned by one individual or entity, and the leasehold interest (i.e. improvements) to be owned by a separate individual or entity. So for example, you may be thinking about getting the arrive on which a Target Superstore is developed. Target owns the building and is renting the land for some prolonged duration of time. The overall rentable area of the building is the 'Leasehold Net Rentable Area'.<br>
<br>Section 1 - Residential Or Commercial Property Description<br>
<br>The Investment Timing area consists of 4 needed inputs and one optional inputs. These inputs belong to the chronology of the ground lease and financial investment.<br>
<br>Ground Lease Start Date - The month and year when the ground lease started. This should likewise 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 total length of the ground lease, not the variety of years remaining. The optimum length is 100 years. Based upon the ground lease length, the model then determines the Ground Lease End Date (i.e. maturity date).
Analysis Start Date - The month and year that the analysis is to begin. This normally amounts to the Next Ground Lease Payment date, although the model was developed to enable analysis to start prior to the Next Ground Lease Payment date.
Analysis End Date - An optional input, this is by default the Ground Lease End Date. In the event you're examining a shorter hold duration, simply alter the orange font cell I17 to the favored analysis end date.<br>
<br>Section 2 - Investment Timing<br>
<br>The Ground Lease Terms section contains the organization regards to the ground lease, including payment quantity, frequency, and rent increases. This section consists of 5 inputs plus the option to manually model the rent payment quantities.<br>
<br>Initial Payment Amount - The quantity of the very first lease payment. Depending upon the payment frequency input (see listed below), this quantity might be for an annual or month-to-month payment.
Lease Increase Method - The method used to design rent increases. This can either be: None - No rent boosts.
% Inc. - A percentage increase over the previous rent amount.
$ Inc. - An amount increase over the previous rent quantity.
Custom - Manually model the rent payment quantities by year. If Custom is picked, the annual lease payment amounts in row 26 become inputs for you to by hand change (i.e. typeface turns blue). Important Note: If you pick Custom and begin to change the annual lease payment amounts in row 26, there is no chance 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) area where you compute the reversion worth of the land (i.e. ground lease), the present worth of the land (i.e. ground lease), and the imputed worth 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 design the value of the residential or commercial property as if there was no ground lease. Or simply put, a common direct cap assessment of a realty investment. Inputs consist of: Current Net Operating Income (Annual Before Ground Lease Payment) - Enter the yearly net operating earnings stemmed from leasing the improvements, unique 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 concept 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 return 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 cost (i.e. before inflation). Retenanting may consist of simple leasing expenses, it may include renovation and leasing, or it may include taking apart the building and rebuilding something new. The idea is to arrive at a 'Net Reversion Value (Nominal)' after accounting for the cost to retenant.
Reversion Growth Rate (Annually) - All of the above calculations are done before accounting for inflation (i.e. development). Enter a growth rate here, and the 'Net Reversion Value (Nominal)' will be grown to reach a 'Reversion Value (Adjusted for Growth)' used as the reversion value in the ground lease present value estimation.
Reversion Value (Adjusted for Growth) - Optional Input. The reversion value utilized in the ground lease present worth estimation. It is computed by taking the residential or commercial property value internet of any retenanting costs, and after that growing it by a development rate. The value is an optional input in the occasion you want to tailor the reversion value.<br>
<br>Discount Rate - The discount rate at which to calculate today worth of the ground lease money flows. Think of this discount rate as an obstacle rate (i.e. necessary rate of return) for a ground lease financial investment.<br>
<br>Section 4 - Valuation (Fee and Leasehold)<br>
<br>The Ground Lease Returns (Unlevered) area allows you to determine the unlevered (i.e. before financial obligation) returns of a ground lease investment. If you are thinking about acquiring a ground lease, it is within this area where you can enter your acquisition/investment cost, and see the corresponding returns from that financial investment. The area consists of simply one input. <br>
<br>Ground Lease Investment Cost - This is the expense to acquire land with a ground lease. It must include the acquisition expense, together with any other due diligence, closing, and pursuit costs related to the investment.<br>
<br>After entering the Ground Lease Investment Cost, the section computes 5 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 extremely 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) section enables you to compute the levered (i.e. with financial obligation) returns of a ground lease financial investment. If you are considering purchasing a ground lease and intend to finance the purchase, it is within this area where you can get in the debt presumptions, and see the matching return from that levered financial investment. The section includes three inputs.<br>
<br>Ground Lease Permanent Loan Amount LTV- Enter the loan-to-value of the ground lease mortgage, and the model will determine the loan quantity.
- Annual Interest Rate - The annual rate to be paid on the mortgage. Note that the design currently only allows for an interest-only loan.
- Interest-Only Payment (Annual vs. Monthly) - Enter whether the mortgage payment will be due regular monthly or yearly.<br>
<br>After getting in the debt assumptions for the ground lease financial investment, the area determines 5 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 dependent on the analysis period, payment schedule, and reversion worth. The quantity and rate of the debt will likewise greatly drive the levered return. And as a pointer, in the meantime the design only permits debt with interest-only payments and a balloon at the end of the analysis period.<br>
<br>Section 6 - Ground Lease Returns (Levered)<br>
<br>The last area is where backend inputs used in the various data validation lists are discovered. Unless you intend to customize the model, there is no factor to change the values in this section.<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've put together a short video that walks you through the various areas of the model. Note that this video is based on v1.0 of the model.<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 (enter $0 if you 'd like) or maximum (your assistance assists keep the content coming - normal property evaluation models cost $100 - $300+ per license). Just get in a cost together with an e-mail address to send out the download link to, and after that click 'Continue'. If you have any questions about our "Pay What You're Able" program or why we provide our designs on this basis, please reach out to either Mike or Spencer.<br>
<br>We frequently upgrade the model (see variation notes). Paid factors to the design get a brand-new download link through email 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 improved readability
- Updates to placeholder values
- Fix to misspelled word on Version tab<br>
<br>Version 2.32<br>
<br>- Removed redundant details in E17: G17.
- Updated I22 to show more precise years of term remaining.
- Updates to placeholder values<br>
<br>Version 2.31<br>
<br>- Further revisions to logic in I59<br>
<br>Version 2.3<br>
<br>- Fixed problem where the OFFSET() range in the optional formula for 'Reversion Value' (I59) was missing the last cell<br>
<br>Version 2.2<br>
<br>- Revised formula in M26: DG26 to fix for concern when payment is Monthly and not % Inc (thanks to Accelerator member JS for the repair!).
- Updates to placeholder values<br>
<br>Version 2.1<br>
<br>- Updates to placeholder worths.
- Added additional notes under 'Quick Start Guide' to clarify common confusion around start dates for various sections.
- Misc. formatting updates<br>
<br>Version 2.0<br>
<br>- Moved 'Analysis Start', 'Analysis Period', and 'Analysis End' inputs above Ground Lease dates for improved user experience.
- Added a 'Flying Start Guide' to offer a tutorial for utilizing the model.
- Renamed 'Lease Increase Method' to 'Lease Payment Increase Method' for explanation purposes.
- Renamed 'Ground Lease Reversion Value' to 'Current Fee Simple Value and Ground Lease Reversion Value'.
- Added 'Investment Term' assumption to enable financier to examine returns on an Analysis Period much shorter than the Ground Lease term - Renamed 'Investment Timing' to 'Valuation Timing' to differentiate in 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 formatting to much better differentiate in between Valuations areas and Investment Returns areas.
- 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 colleagues for business real estate. He has 20+ years of CRE experience and has financed over $30 billion in property across top institutional companies.<br>[bestestateagentguide.co.uk](https://bestestateagentguide.co.uk/)