Add Ground Lease Valuation Model (Updated Mar 2025).

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 [homegoods.com](https://www.homegoods.com/)<br>The topic of ground leases has actually come up numerous times in the past few weeks. Numerous A.CRE readers have emailed to request for a purpose-built Ground Lease Valuation Model. And I remain in the  of [developing](https://samui-island-realty.com) an Advanced Concepts Module for our realty financial modeling Accelerator program covering the [mechanics](https://patrimoniomallorca.com) of modeling ground leases. So I believed now would be a great time to share my Ground Lease Valuation Model in Excel.<br>
 <br>This model can be utilized standalone, or [included](https://dreampropertiespr.com) to your [existing property-level](https://www.jukiwa.co.ke) design. In any case, it is helpful for both landowners aiming to size a ground lease payment or leasehold owners aiming to [understand](https://preconcentral.com) the worth of the leasehold (i.e. improvements) [relative](https://cabana.villas) to the fee simple interest (i.e. land).<br>
 <br>Excel design for [examining](https://mrajhi.com.sa) a ground lease<br>
 <br>What is a [Ground Lease](https://number1property.com) and Leasehold Interest?<br>
 <br>If you [unfamiliar](https://leonisinmobiliaria.com) with the principles of Ground Lease and Leasehold Interest, I'll refer you to the meanings in our Glossary of CRE Terms:<br>
 <br>[Ground lease](https://whitestarre.com) - "A lease structure where an investor rents the land (i.e. ground) just. When it comes to a ground lease, usually one celebration owns the land (i.e. charge basic interest) while a separate party owns the improvements (i.e. leasehold interest). Most of the times, the owner of the land leases the land to the owner of the improvements for a prolonged amount of time (20 - 100 years)."<br>
 <br>[Leasehold](https://betnet.et) Interest - "In realty, a leasehold interest refers to a structure where an individual or entity (lessee) leases the land (i.e. ground lease) from the cost easy owner (lessor) of the land for an extended duration of time. The lessee of a leasehold estate will normally own the enhancements on the land and use the land and improvements as if the lessee were the owner of the land. During the term of the ground lease, the lessee will pay rent to the lessor for use of the land. At the end of the ground lease term, the lessee needs to return use of the land, and any enhancements thereon, to the land owner.<br>
 <br>Ground leases prevail to prime locations, where landowners don't always desire to sell however where they might not have the know-how (or desire) to run. Thus, they rent the land to somebody who owns and runs the enhancements on the land, and get a ground lease payment in return. You see this frequently with workplace structures in the downtown core of significant cities.<br>
 <br>Another case where you'll face ground leases remain in retail shopping mall. Oftentimes, prominent retail occupants choose to construct and own their space but the developer doesn't necessarily want to sell the land. So, the retail occupant will agree to rent the ground for 40+ years and develop their own structure on the leased land. Banks, nationwide restaurants in outparcels, and big department shops are examples of renters that frequently accept this structure.<br>
 <br>Quick Note: Not thinking about DIY analysis? Consider working with A.CRE Consulting to manage your bespoke modeling task.<br>
 <br>How to Use the Ground Lease Valuation Model<br>
 <br>All sections of the Ground Lease Valuation Model are included on one worksheet. This is intentional to allow you to place this design into your own property-level model to make it much easier to include a ground lease element to your analysis.<br>
 <br>All analysis is carried out on the tab entitled 'Ground Lease'. A 'Version' tab is also consisted of where you can see a change log for the design, along with find essential links associated with the model.<br>
 <br>The Ground Lease worksheet is separated into seven areas as described and discussed listed below:<br>
 <br>The Residential or commercial property Description section consists of five inputs related to the investment. These inputs are:<br>
 <br>SF/M2 - In cell I3 enter whether the measure 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 append the name of the investment with (Ground Lease) to represent that the financial investment is for the charge 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 instantly be computed in cell E6.
 Leasehold Net Rentable Area - Total net rentable location in SF or M2 of the physical enhancements (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 different person or entity. So for example, you may be thinking about acquiring the arrive on which a Target Superstore is developed. Target owns the building and is leasing the land for some prolonged amount of time. The overall rentable location of the structure is the 'Leasehold Net Rentable Area'.<br>
 <br>Section 1 - Residential Or Commercial Property Description<br>
 <br>The Investment Timing section includes 4 required inputs and one optional inputs. These inputs belong to the chronology of the ground lease and investment.<br>
 <br>Ground Lease Start Date - The month and year when the ground lease commenced. This ought to also be the month and year of the 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 commencement through ground lease maturity. This is the total length of the ground lease, not the number of years staying. The optimum length is 100 years. Based on the ground lease length, the model then calculates the Ground Lease End Date (i.e. maturity date).
 Analysis Start Date - The month and year that the analysis is to begin. This typically amounts to the Next Ground Lease Payment date, although the model was built to permit 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 case you're evaluating a shorter hold duration, just alter the orange font cell I17 to the preferred analysis end date.<br>
 <br>Section 2 - Investment Timing<br>
 <br>The Ground Lease Terms area contains the business regards to the ground lease, consisting of payment quantity, frequency, and lease increases. This area consists of five inputs plus the option to manually design the lease payment amounts.<br>
 <br>Initial Payment Amount - The amount of the very first lease payment. Depending upon the payment frequency input (see below), this amount might be for a yearly or monthly payment.
 Lease Increase Method - The method used to model rent increases. This can either be: None - No lease boosts.
 % Inc. - A portion boost over the previous lease amount.
 $ Inc. - A quantity boost over the previous lease amount.
 Custom - Manually design the lease payment amounts by year. If Custom is picked, the yearly rent payment quantities in row 26 become inputs for you to by hand change (i.e. typeface turns blue). Important Note: If you select Custom and begin 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) area where you determine the reversion value of the land (i.e. ground lease), today worth of the land (i.e. ground lease), and the imputed value of the leasehold interest. This area is broken up into 3 subsections, with 5 inputs and one optional input across the 3 subsections.<br>
 <br>Ground Lease Reversion Value - Within this subsection you model the worth of the residential or commercial property as if there was no ground lease. Or in other words, a common direct cap valuation of a realty investment. Inputs include: Current Net Operating Income (Annual Before Ground Lease Payment) - Enter the yearly net operating earnings derived from renting the enhancements, exclusive 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 worth of the residential or commercial property before accounting for the ground lease.
 Retenanting Costs (Nominal) - At the end of the ground lease term, the ground lessor will return the land plus any enhancements 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 may include simple leasing expenses, it might include restoration and leasing, or it may include taking apart the structure and rebuilding something new. The idea is to arrive at a 'Net Reversion Value (Nominal)' after accounting for the expense to retenant.
 Reversion Growth Rate (Each Year) - All of the above calculations are done before accounting for inflation (i.e. growth). Enter a development rate here, and the 'Net Reversion Value (Nominal)' will be grown to reach a 'Reversion Value (Adjusted for Growth)' utilized as the reversion worth in the ground lease present worth computation.
 Reversion Value (Adjusted for Growth) - Optional Input. The reversion worth used in the ground lease present worth calculation. It is calculated by taking the residential or commercial property worth web of any retenanting expenses, and then growing it by a development rate. The value is an optional input in case you desire to customize the reversion worth.<br>
 <br>Discount Rate - The discount rate at which to determine today value of the ground lease money flows. Think of this discount rate as a difficulty 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) section permits you to determine the unlevered (i.e. before financial obligation) returns of a ground lease investment. If you are considering purchasing a ground lease, it is within this section where you can enter your acquisition/investment cost, and see the matching returns from that financial investment. The area consists of simply one input. <br>
 <br>Ground Lease Investment Cost - This is the cost to get land with a ground lease. It must include the acquisition cost, together with any other due diligence, closing, and pursuit costs related to the financial investment.<br>
 <br>After entering the Ground Lease Investment Cost, the area calculates 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 extremely reliant 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 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 fund the purchase, it is within this section where you can get in the financial obligation presumptions, and see the matching return from that levered 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 design will calculate the loan amount.
 - Annual Interest Rate - The yearly rate to be paid on the mortgage. Note that the model currently just permits an interest-only loan.
 - Interest-Only Payment (Annual vs. Monthly) - Enter whether the mortgage payment will be due regular monthly or every year.<br>
 <br>After going into the financial obligation assumptions 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>Similar to the unlevered analysis, the resulting returns are highly based on the analysis duration, payment schedule, and reversion value. The quantity and rate of the financial obligation will likewise greatly drive the levered return. And as a suggestion, in the meantime the model only permits 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 numerous data recognition lists are found. Unless you intend to modify the design, there is no reason to alter 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 composed guidance above, I've assembled a short video that walks you through the various areas of the model. Note that this video is based on v1.0 of the design.<br>
 <br>Download the Ground Lease Valuation Model<br>
 <br>To make this model available to everybody, it is used on a "Pay What You're Able" basis with no minimum (get in $0 if you 'd like) or optimum (your support assists keep the material coming - normal real estate evaluation designs offer for $100 - $300+ per license). Just get in a cost together with an e-mail address to send the download link to, and after that click 'Continue'. If you have any concerns about our "Pay What You're Able" program or why we offer our models on this basis, please reach out to either Mike or Spencer.<br>
 <br>We regularly upgrade the model (see version notes). Paid factors to the model receive a brand-new download link via e-mail each time the model is updated.<br>
 <br>Version Notes<br>
 <br>Version 2.33<br>
 <br>- Rewrote 'Flying Start Guide' with updates and for enhanced 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 reflect more precise years of term staying.
 - Updates to placeholder worths<br>
 <br>Version 2.31<br>
 <br>- Further revisions to reasoning in I59<br>
 <br>Version 2.3<br>
 <br>- Fixed issue 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 fix for problem when payment is Monthly and not % Inc (thanks to Accelerator member JS for the fix!).
 - Updates to placeholder values<br>
 <br>Version 2.1<br>
 <br>- Updates to placeholder values.
 - Added extra notes under 'Quick Start Guide' to clarify typical 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 enhanced user experience.
 - Added a 'Quick Start Guide' to supply a tutorial for using the design.
 - 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 allow for investor to analyze returns on an Analysis Period shorter than the Ground Lease term - Renamed 'Investment Timing' to 'Valuation Timing' to separate in between appraisal 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 better differentiate in between Valuations areas and Investment Returns areas.
 - Adjusted return formulas to make dynamic 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 industrial realty. He has 20+ years of CRE experience and has underwritten over $30 billion in realty across leading institutional companies.<br>[nahb.org](https://www.nahb.org/)