Question regarding selling property with long active lease
I have a commercial property with 15 years left on the active lease. My question is, does that 15 year lease raise the value of my property at all? Meaning, the building has it's own value, but will the lease with the tenants raise the value at all to my sale?
Here are some very rough numbers
Building built in 2015 for 1 million
20 year lease signed at that time, lease with CAM fees (only CAM is property tax) is roughly 15k/mo.
Is that 15k/mo lease of 15 years worth anything when I go to sell the building?
This is a family situation, I own the building, sister runs the business, but it is damaging our relationship so I'm looking to dump the building, but looking to recoup my potential gains if at all possible.
Most Popular Reply
It really depends on the tenant and where rents are in correlation to the market. The higher the value the tenant (investment grade rated), the long lease will increase the value much more than it would if the tenant is a local business that doesn't have strong financials. I give this an example because it could be a local church that is on a 15 year lease and the value would likely not change between a 5 year lease and a 15 year lease.
Without having much detail, making a blanket statement of having a longer lease will increase the value is generally true. More specifically, the long term lease will generally decrease the Capitalization rate on the property thus putting more value on the income that the property produces.
James Storey, CCIM