LESSEE & LESSOR INTERESTS - QUESTIONS

1 Determine the unencumbered market values of the following properties:

• Remainder of Lease Term: 15 years
• Lease rental: 120 000 pa
• Market rental: 200 000 pa
• Interest rate: 9 % pa
• Remainder of Lease term: 5 years
• Lease rental: 100 000 pa
• Market rental: 200 000 pa
• Interest rate: 9.% pa

• Remainder of lease term: 1 year
• Lease rental: 90 000 pa
• Market rental: 200 000 pa
• Interest rate: 9% pa

2 The unencumbered value of an investment property is \$10 000 000.

It is subject to a lease with 5 years remaining and a profit rental of \$40 000 pa.

Using 10.5% pa what are the lessee's and lessor's interests?

3 The rent being paid under a lease with 5 years remaining is \$100 000 pa.

The property has recently sold for \$1 500 000.

Using 12% pa determine the lessee's interest.

4 An investment property is subject to a lease with 5 years to run and an annual rent of \$150 000 pa. If the market rent is \$150 000 pa determine the lessee's interest, the lessor's interest and unencumbered market value.

Use 9.5% pa.

5 An investment property has recently sold for \$1500 000. The market rent is \$150 000 pa and the lease rent is \$90 000 pa.

Determine the capitalization rate if the lease has 4 years to run.

6 Discuss the advantages and disadvantages of the reversionary and shortfall methods for the valuation of a CBD investment property.

7 Determine the reversionary capitalization rate from the following information:

• Sale price: 1500 000
• Residue of lease period: 2 years
• Net annual income under the lease: 100000 pa
• Net annual income under market rent: 120 000 pa.

Use 10% pa as the discount rate in the short run.