Evaluating the reasonable rent for one retail lease

Donald Gilbert

The Valuation Journal, 2018, vol. 13, issue 2, 49-87

Abstract: The purpose of this paper is to present a new and improved method and invention for valuing the rent for retail property. It is important to establish this rent properly because of the implications for tenant’s businesses’ which potentially flows into the entire property sector. The approach uses the Authors’ twenty-two years experience in valuing retail leases for tenants and property owners. In that practice an entirely new step-by-step method has been invented and a computer software program has been developed to assist in this process. Using that software, the paper outlines key steps in evaluating the “reasonable rent†for one retail lease. A logical step-by-step process is documented in the paper. Each step links the lease or shop being valued to a specific data series, which enables the software or advisor consultant to make an informed opinion regarding the aspect of the specific data series being stress-tested and valued. As the parties to a lease or any other stakeholder in the mix, who is reliant upon a lease(s) as a negotiable instrument (eg. for mortgage purposes) are “walked†through the process, one can make an informed decision about what the “reasonable†rent might be for the lease periodahead. The Author believes that there is a significant shortfall in the way retail property is valued based on setting rentals, which has multiple ramifications for tenants’ business, owners of retail properties and potentially the entire retail property industry. The method detailed here, drawn in knowledge and experience from several disciplines provides a way of addressing that shortfall. The product is undergoing advanced beta testing and is a significant improvement of how one retail lease is valued. It has already been earmarked to become an “industry†standard. The methodology here links into the requirements under IFRS 16, which is a requirement by January 2019 to have leases valued for Balance Sheet purposes.

JEL-codes: L85 O31 R30 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:vaj:journl:v:13:y:2018:i:2:p:49-87

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