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Back to the future with the dual lease-hold rate

Author

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  • Tommaso Gabrieli

Abstract

We are contemporary real estate valuers who use daily tools of present value maths and discounted cash flow analysis. Endowed with those tools, we travel back to the 30's and analyse the origins of the dual leasehold rate, an appraisal technique that has been widely used -but contested- till our present times. Following the journey of Mackmin (2008), we find that the original idea of Mackmin (1928) is based on a correct valuation principle, but the dual-rate formula advocated by Parry (1930) and others is wrong in terms of discounting. We correct the old formula and we take it back to the present. The corrected formula can then be further extended and adapted to different cases of contemporary leasehold valuations. We show through some numerical simulations to which extent the old dual-rate formula differs from the corrected version. We reach a possibly different conclusion from the one of Mackmin (2008): a dual (or even triple) rate formula can still be useful to value leaseholds but it needs to be obtained by correct principles of discounted cash flow.

Suggested Citation

  • Tommaso Gabrieli, 2023. "Back to the future with the dual lease-hold rate," ERES eres2023_206, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2023_206
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    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2023-206
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    More about this item

    Keywords

    Leasehold Dual Rate; Leasehold Single Rate; Leasehold Valuation; Valuation mathematics;
    All these keywords.

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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