MilleniuM Real Estate Advisors was
selected to provide a ground lease valuation for the owners of the Willard Inter-Continental Hotel and Office Building for use in their negotiations with the Federal Government to purchase the land subject to the lease. That ground lease contained provisions that based the amount of ground lease on the net income of the property, with certain exclusions but with additional participations. In order to value the ground lease, it was necessary to construct a detailed cash flow projection for the 25-year remaining term of the lease, create an algorithm that properly segregated the net income flows, and discount the appropriate income at a market rate.
The determination of a market yield rate for the ground lease was done through a survey of ground leases throughout Washington, sales of property subject to ground leases, sales of ground leases and alternative financial instruments. The result of the analysis was a market-supported indication of value at approximately half the original asking price. The resulting transaction was within approximately 5% of the value indication.
