Hey all was just reaching out to see how you guys normally determine value for residential ground leases, is it a cap rate approach etc?
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PV of cash flows (discounted at some rate) + value of the land (again, discounted to PV)
RealtyRates.com provides discount rate comps. Discount rate should be compared to cap rates to make sure there is not a huge delta ( 100 bps).
You can also use the Built-up Method to determine the discount rate (e.g. safe-rate [T-bonds] + risk factor). For the risk factor, look to the spread between Aaa and Baa corporate bonds.
A bit of an art. 50 year ground lease on a retail center in a tertiary market is not the same as 50 years in New York City.
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