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Lessor and lessee perspectives on ground lease pricing

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  • Svante Mandell

Abstract

This paper is concerned with how to calculate fair ground rents in perpetual ground lease arrangements and under what circumstances ground leases are motivated. These problems have been debated for some time. In general, two different kinds of models have emerged in real estate economic literature. Both are reviewed in the paper. One difference between them is the interpretation of the term 'fair'. In this paper, a view of 'fair' ground rents stemming from the Pareto criterion is introduced. It is argued that, under this view, both kinds of models must be used simultaneously. Hence, the two models are modified and combined into a so-called combined model. Using this, it is argued that risk-sharing and asymmetric information about future value growth are two important motivations for ground leases. The latter is of certain interest, since it can result in an adverse selection problem followed by a thin market.

Suggested Citation

  • Svante Mandell, 2002. "Lessor and lessee perspectives on ground lease pricing," Journal of Property Research, Taylor & Francis Journals, vol. 19(2), pages 145-157, January.
    • Handle: RePEc:taf:jpropr:v:19:y:2002:i:2:p:145-157
    DOI: 10.1080/09599910210125241
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    References listed on IDEAS

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    1. Brealey, R A & Young, C M, 1980. "Debt, Taxes and Leasing-A Note," Journal of Finance, American Finance Association, vol. 35(5), pages 1245-1250, December.
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    Cited by:

    1. Maria Trojanek & Marcin Anholcer & Audrius Banaitis & Radoslaw Trojanek, 2018. "A Generalised Model of Ground Lease Pricing," Sustainability, MDPI, vol. 10(9), pages 1-21, September.
    2. Caesar, Carl & Donner, Herman & Kopsch, Fredrik, 2019. "The impact of leasehold status on apartment price," Journal of Housing Economics, Elsevier, vol. 46(C).

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