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Opened Jun 21, 2025 by Berenice Scarberry@berenicescarbe
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Ground Lease Valuation Model (Updated Mar 2025).


The subject of ground leases has actually come up numerous times in the previous couple of weeks. Numerous A.CRE readers have emailed to request for a purpose-built Ground Lease Valuation Model. And I'm in the procedure of creating an Advanced Concepts Module for our property financial modeling Accelerator program covering the mechanics of modeling ground leases. So I thought now would be a great time to share my Ground Lease Valuation Model in Excel.

This design can be used standalone, or added to your existing property-level model. In either case, it is handy for both landowners wanting to size a ground lease or leasehold owners seeking to comprehend the worth of the leasehold (i.e. enhancements) relative to the cost basic interest (i.e. land).

Excel model for assessing a ground lease

What is a Ground Lease and Leasehold Interest?

If you not familiar with the concepts of Ground Lease and Leasehold Interest, I'll refer you to the definitions in our Glossary of CRE Terms:

Ground lease - "A lease structure where a real estate investor rents the land (i.e. ground) only. In the case of a ground lease, normally one party owns the land (i.e. fee simple interest) while a separate celebration owns the improvements (i.e. leasehold interest). In many cases, the owner of the land rents the land to the owner of the improvements for an extended duration of time (20 - 100 years)."

Leasehold Interest - "In property, a leasehold interest describes a structure where a private or entity (lessee) leases the land (i.e. ground lease) from the cost simple owner (lessor) of the land for an extended amount of time. The lessee of a leasehold estate will generally own the improvements 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 lease to the lessor for usage of the land. At the end of the ground lease term, the lessee needs to return usage of the land, and any enhancements thereon, to the land owner.

Ground leases are typical to prime places, where landowners don't always want to offer but where they might not have the proficiency (or desire) to operate. Thus, they rent the land to someone who owns and operates the improvements on the land, and receive a ground lease payment in return. You see this quite typically with office complex in the downtown core of major cities.

Another case where you'll encounter ground leases are in retail shopping mall. Oftentimes, prominent retail occupants prefer to develop and own their area but the developer does not necessarily want to offer the land. So, the retail renter will concur to rent the ground for 40+ years and build their own building on the leased land. Banks, national dining establishments in outparcels, and large outlet store are examples of tenants that often consent to this structure.

Quick Note: Not thinking about DIY analysis? Consider working with A.CRE Consulting to manage your bespoke modeling project.

How to Use the Ground Lease Valuation Model

All areas of the Ground Lease Valuation Model are included on one worksheet. This is intentional to allow you to insert this model into your own property-level model to make it simpler to include a ground lease component to your analysis.

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 model, as well as discover important links connected to the design.

The Ground Lease worksheet is broken up into 7 sections as detailed and described below:

The Residential or commercial property Description area includes 5 inputs associated to the financial investment. These inputs are:

SF/M2 - In cell I3 enter whether the procedure of size remains in square feet (SF) or square meters (M2). Residential or commercial property Name - Name of the financial investment. It is common in realty to append the name of the investment with (Ground Lease) to signify that the financial investment is for the fee simple 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 immediately be determined 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 person or entity, and the leasehold interest (i.e. enhancements) to be owned by a separate individual or entity. So for example, you may be considering obtaining the land on which a Target Superstore is constructed. Target owns the structure and is renting the land for some prolonged time period. The total rentable location of the structure is the 'Leasehold Net Rentable Area'.

Section 1 - Residential Or Commercial Property Description

The Investment Timing section includes four needed inputs and one optional inputs. These inputs are associated to the chronology of the ground lease and investment.

Ground Lease Start Date - The month and year when the ground lease started. This need to likewise 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 beginning through ground lease maturity. This is the total length of the ground lease, not the variety of years staying. The optimum length is 100 years. Based on the ground lease length, the design 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 generally is equivalent to the Next Ground Lease Payment date, although the design was constructed to permit for 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 evaluating a much shorter hold duration, merely change the orange font cell I17 to the favored analysis end date.

Section 2 - Investment Timing

The Ground Lease Terms area includes business regards to the ground lease, consisting of payment amount, frequency, and rent boosts. This section consists of 5 inputs plus the option to by hand design the lease payment quantities.

Initial Payment Amount - The quantity of the very first lease payment. Depending upon the payment frequency input (see below), this amount may be for a yearly or monthly payment. Lease Increase Method - The approach utilized to model lease boosts. This can either be: None - No lease increases. % Inc. - A percentage boost over the previous lease quantity. $ Inc. - An amount boost over the previous rent amount. Custom - Manually model the rent payment amounts by year. If Custom is picked, the annual rent payment amounts in row 26 become inputs for you to manually alter (i.e. font style turns blue). Important Note: If you pick Custom and start to alter the annual lease payment quantities in row 26, there is no other way to revert back to another Lease Increase Method.

Section 3 - Ground Lease Terms

It is within the Valuation (Fee and Leasehold) section where you calculate the reversion worth of the land (i.e. ground lease), today value of the land (i.e. ground lease), and the imputed value of the leasehold interest. This section is separated into three subsections, with five inputs and one optional input across the 3 subsections.

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 normal direct cap evaluation of a real estate financial investment. Inputs consist of: Current Net Operating Income (Annual Before Ground Lease Payment) - Enter the yearly net operating earnings originated from leasing the enhancements, 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 reach 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 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 may include simple leasing expenses, it may include renovation and leasing, or it might consist of tearing down the building and reconstructing something brand-new. The idea is to show up at a 'Net Reversion Value (Nominal)' after representing 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 come to a 'Reversion Value (Adjusted for Growth)' used as the reversion value in the ground lease present worth estimation. Reversion Value (Adjusted for Growth) - Optional Input. The reversion value used in the ground lease present worth computation. It is computed by taking the residential or commercial property value net of any retenanting expenses, and then growing it by a growth rate. The value is an optional input in the occasion you want to customize the reversion value.

Discount Rate - The discount rate at which to calculate today worth of the ground lease cash circulations. Consider this discount rate as an obstacle rate (i.e. required rate of return) for a ground lease financial investment.

Section 4 - Valuation (Fee and Leasehold)

The Ground Lease Returns (Unlevered) area permits you to compute 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 section where you can enter your acquisition/investment expense, and see the matching returns from that investment. The area consists of simply one input.

Ground Lease Investment Cost - This is the expense to obtain land with a ground lease. It needs to include the acquisition expense, together with any other due diligence, closing, and pursuit expenses associated with the investment.

After getting in the Ground Lease Investment Cost, the area computes 5 return metrics:

- Unlevered Internal Rate of Return

  • Unlevered Equity Multiple
  • Net Profit Average Rate of Return
  • Average Free-and-Clear Return

    Note that the resulting returns are extremely dependent on the analysis duration, payment schedule, and reversion value.

    Section 5 - Ground Lease Returns (Unlevered)

    The Ground Lease Returns (Levered) section allows you to determine the levered (i.e. with debt) returns of a ground lease financial investment. If you are considering purchasing a ground lease and mean to finance the purchase, it is within this area where you can get in the financial obligation presumptions, and see the matching return from that levered investment. The section includes 3 inputs.

    Ground Lease Permanent Loan Amount LTV- Enter the loan-to-value of the ground lease mortgage, and the design will compute the loan quantity.
  • Annual Rate Of Interest - The yearly rate to be paid on the mortgage. Note that the design presently just enables an interest-only loan.
  • Interest-Only Payment (Annual vs. Monthly) - Enter whether the mortgage payment will be due regular monthly or yearly.

    After getting in the debt presumptions for the ground lease financial investment, the area determines five return metrics:

    - - Levered Internal Rate of Return
  • Levered Equity Multiple
  • Net Profit
  • Average Rate of Return
  • Average Cash-on-Cash Return

    Similar to the unlevered analysis, the resulting returns are highly based on the analysis period, payment schedule, and reversion worth. The amount and rate of the financial obligation will also heavily drive the levered return. And as a suggestion, in the meantime the model only enables financial obligation with interest-only payments and a balloon at the end of the analysis period.

    Section 6 - Ground Lease Returns (Levered)

    The last area is where backend inputs used in the numerous data validation lists are discovered. Unless you intend to modify the design, there is no reason to change the values in this section.

    Section 7 - Data Validation

    Video Walkthrough - Using the Ground Lease Valuation Model

    In addition to the composed guidance above, I've assembled a short video that walks you through the different areas of the model. Note that this video is based on v1.0 of the design.

    Download the Ground Lease Valuation Model

    To make this design available to everybody, it is offered on a "Pay What You're Able" basis with no minimum (enter $0 if you 'd like) or optimum (your support assists keep the content coming - typical realty assessment designs cost $100 - $300+ per license). Just go into a cost 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 models on this basis, please connect to either Mike or Spencer.

    We routinely upgrade the model (see variation notes). Paid contributors to the design receive a new download link by means of e-mail each time the design is upgraded.

    Version Notes

    Version 2.33

    - Rewrote 'Quick Start Guide' with updates and for improved readability
  • Updates to placeholder worths
  • Fix to misspelled word on Version tab

    Version 2.32

    - Removed redundant details in E17: G17.
  • Updated I22 to show more precise years of term staying.
  • Updates to placeholder worths

    Version 2.31

    - Further modifications to logic in I59

    Version 2.3

    - Fixed problem where the OFFSET() variety in the optional formula for 'Reversion Value' (I59) was missing the last cell

    Version 2.2

    - 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

    Version 2.1

    - Updates to placeholder values.
  • Added extra notes under 'Flying start Guide' to clarify typical confusion around start dates for different areas.
  • Misc. formatting updates

    Version 2.0

    - Moved 'Analysis Start', 'Analysis Period', and 'Analysis End' inputs above Ground Lease dates for improved user experience.
  • Added a 'Quick Start Guide' to provide a tutorial for utilizing the model.
  • 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 permit financier to evaluate returns on an Analysis Period much shorter than the Ground Lease term - Renamed 'Investment Timing' to 'Valuation Timing' to differentiate in between assessment 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 much better differentiate between Valuations sections and Investment Returns sections.
  • Adjusted return solutions to make dynamic to Investment Hold Period

    Version 1.0

    - Initial release

    About the Author: Spencer Burton is Co-Founder and CEO of CRE Agents, an AI-powered platform training digital coworkers for commercial real estate. He has 20+ years of CRE experience and has actually financed over $30 billion in property across top institutional firms.
    builditsolar.com
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Reference: berenicescarbe/roostaustin#16