Revisionary Freeholds: Problems with Over‐renting

Crosby, Neil; Goodchild, Robin

doi:10.1108/14635789310031432

Cited by 17 publications

(17 citation statements)

References 2 publications

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“…Against such rapid change and the consequent risk of premature obsolescence, the lessees appear completely unprotected -except in so far as the leases may enable them to change brand and image. The implications of this could be that leisure property lessees face a worse scenario than that of many office tenants during the early 1990s when 'over-renting' occurred, 81 for over-renting will occur unless leisure rents not only do not fall back but actually increase above the rate of projected inflation year on year.…”

Section: Discussionmentioning

confidence: 99%

The new leisure leases: Do they measure up to institutional requirements?

Sayce

2000

J Retail Leisure Property

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The acceptability of property for inclusion in institutional portfolios relates to many factors. One is the nature of the lease contract. Over the three decades preceding the 1990s, a lease of 20 to 25 years on full repairing and insuring terms and let at rents which are reviewable upwards only became the accepted institutional 'norm', but research has shown a fragmentation of lease terms emerging during the last decade, reflective partly of recession and partly of changing occupier needs. At the time the institutional lease developed, leisure properties were not generally included in institutional portfolios but remained in operator or specialist ownership. Over recent years, however, new styles of leisure properties have been developed which have begun to enter investment ownership. It is believed that one of the reasons for this lies in the type of leases which leisure operators on the new-style 'leisure parks' have entered into. These are believed to fill the 'norm' in ways possibly less achievable by investors in other types of properties. The paper details some of the characteristics of the newstyle leisure developments and presents findings of a pilot study of some new-style leisure leases. It argues that these do indeed meet investor requirements, although in a way which might present longterm difficulties to the occupying lessees. If this is so, it concludes, the long-term effect for the investor could be negative.

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Section: Discussionmentioning

confidence: 99%

The new leisure leases: Do they measure up to institutional requirements?

Sayce

2000

J Retail Leisure Property

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“…A number of commentators (for example, Martin, 1991;Crosby and Goodchild, 1992;French, 1992;Epstein, 1993) have put forward the use of growth explicit market valuation techniques to help solve these technical problems. As real value is a growth implicit model (in so far as the growth rate is only used to calculate the reversionary discount rate), and many practitioners were anxious to consider the future date at which the rental value might ® nally recover to overtake the rent ® xed under the lease, the short-cut DCF model gained most practical support (see Baum and Crosby (1995a) for a review of the debate on overrented properties in the UK).…”

Section: Market Valuation For Over-rented Investment Propertiesmentioning

confidence: 98%

“…Crosby and Goodchild (1992) and Baum and Crosby (1995b) examined the risk of the contract rent secured on high-quality tenants on long leases with upwards-only rent reviews and suggested it had the qualities of an illiquid bond. Where tenant covenant was very strong, the term discount rates were adjusted downwards within the short-cut DCF model to compensate.…”

Section: Market Valuation For Over-rented Investment Propertiesmentioning

confidence: 99%

Contemporary UK market valuation methods for over-rented investment properties: a framework for risk adjustment

Crosby¹,

French²,

Ward³

1997

Journal of Property Research

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This paper develops the recent series of papers published in the Journal of Property Research on the market valuation of investment properties by contemporary approaches. In the previous papers, an arbitrage model has been developed and compared with the real value and short cut or modi® ed DCF alternatives to the valuation of fully let and reversionary properties. This paper investigates the application of these models to over-rented properties where the existing contract rent is in excess of the current rental value. This examination reveals some interesting insights into the applications of the various models concerning the need to be explicit regarding future rental growth and concludes that models which do not reveal their rental growth assumptions can still be successfully applied to the over-rented situation. The paper examines the discount rate choice within contemporary approaches and maintains that the low-risk discount rate, based upon the risk free ® xed interest rate adjusted for risks based upon covenant strength and property illiquidity, is a more appropriate input than a discount rate based upon other property risks such as cash ¯ow change uncertainty and obsolescence (equated yields). It also highlights areas for future research to improve the information base for the discount rate choice.

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“…The example used by Crosby and Goodchild (1992) was of a Central London office building let for 20 years on full repairing and insuring terms with five-year reviews at a passing rent of £2million p.a.…”

Section: Tax Implicationsmentioning

confidence: 99%

The negative leasehold

Mackmin

1995

Journal of Property Valuation and Investment

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There have always been situations where tenants, for one reason or another, have paid rents in excess of open market rental value. The position today, due to the downturn in the letting market, is that many more tenants are now in this position. This poses a problem for valuation surveyors when asked to express an opinion on value for sale, negative or reverse premiums, and on value for asset valuation purposes where negative values must be specified. A further point for consideration is the issue raised by the Accounting Standards Board of charging future rent obligations as a single lump sum to profit and loss accounts. Explores these challenges in relation to leasehold valuation methodology and suggests approaches.

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Revisionary Freeholds: Problems with Over‐renting

Cited by 17 publications

References 2 publications

The new leisure leases: Do they measure up to institutional requirements?

The new leisure leases: Do they measure up to institutional requirements?

Contemporary UK market valuation methods for over-rented investment properties: a framework for risk adjustment

The negative leasehold

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