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Valuing Leasehold Interests and Subleases in Corporate Real Estate, Exercises of Real Estate Management

Examples and questions related to valuing leasehold interests and subleases in corporate real estate. It covers situations where market rents have changed, and the lessee is considering buying out the lease or moving to new space. The document also discusses user alternatives in sublease analysis.

Typology: Exercises

2012/2013

Uploaded on 10/01/2013

dinesh
dinesh 🇮🇳

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Corporate Real Estate Decisions
1) Valuing Leasehold Interests and Subleases
a) Consider the following situation: Three years ago you entered into a 10-year
lease for 25,000 sf at $8.50 psf gross. Now market rent for this space is
$10.00 psf.
What is the value of your leasehold interest if your cost of capital is
10%?
Suppose your landlord wants to buy you out of your lease so that he can
tear down the building and redevelop the land. How much must you be
paid to be willing to give up this lease?
b) Suppose instead that current market rents are $8.00 psf.
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Corporate Real Estate Decisions

  1. Valuing Leasehold Interests and Subleases

a) Consider the following situation: Three years ago you entered into a 10-year lease for 25,000 sf at $8.50 psf gross. Now market rent for this space is $10.00 psf.  What is the value of your leasehold interest if your cost of capital is 10%?

 Suppose your landlord wants to buy you out of your lease so that he can tear down the building and redevelop the land. How much must you be paid to be willing to give up this lease?

b) Suppose instead that current market rents are $8.00 psf.

 What is the value of your leasehold interest in this case?

 Suppose you would like to move to new space and terminate your lease. How much would the landlord insist on being paid to let you out of the lease?

 What is the most you would be willing to pay?

 What are non-financial factors that will affect your decision?

 User alternatives in sublease analysis:

Alternatives: User Wants to Move Contract lower than market rent

Contract higher than market rent Owner

User

Alternatives: User Wants to Stay Contract lower than market rent

Contract higher than market rent Owner

User