Determining the value of a lease can be crucial if you want to buy out a lease. The lease value is essentially assessed by discounting the cash flow from the net lease at the market rate and based on the number of years remaining on the lease.
Estimating the lease value can become more complex for all stakeholders when the contract rent and comparable market rent levels differ. If the contract rent is higher than the market rent, the lessor profits from this difference. It may be helpful to know the actual value of this cash benefit (the leased fee estate value).
Conversely, it should be noted that a tenant who pays a contract rent below comparable market rent levels benefits from leasehold interest whose value can be determined. This value could lead to a transaction, since the advantageous lease may be bought out by the owner, sold to another tenant or applied to a sublet agreement.
Accordingly, to determine the interest earned by all stakeholders, it is first necessary to determine the lease value of the given rental space.
Our appraisers at HPDG are available to help you gain a better understanding of real estate finance. A lease evaluation involves many subtle details, and a certified appraiser with in-depth knowledge of real estate finance and the rental property market can provide you with expert guidance.