The government owns the leasehold interest of a large industrial unit, built in the 1950's on...

Transcribed Image Text:

The government owns the leasehold interest of a large industrial unit, built in the 1950's on a well- established estate. The head lease was granted to a manufacturing company 50 years ago for a term of 70 years at a head lease rent of £15,000 per annum (the amount is the same at lease renewal) with automatic review at lease expiry. The manufacturing company has since relocated its operations to new purpose built premises on the same estate and subsequently sub-let the old premises five years ago on a 25 year FRI lease to a printing firm (assume 5-year reviews on-going lease term). The rent was reviewed last month to £345,000 p.a. Using a discounted cash flow procedure, calculate the value of the head lessee's interest (The manufacturing company's leasehold interest) assuming a leasehold target rate of 14% and a rental growth rate of 1.5% p.a., and the cap rate of similar property is at 8 %. The government owns the leasehold interest of a large industrial unit, built in the 1950's on a well- established estate. The head lease was granted to a manufacturing company 50 years ago for a term of 70 years at a head lease rent of £15,000 per annum (the amount is the same at lease renewal) with automatic review at lease expiry. The manufacturing company has since relocated its operations to new purpose built premises on the same estate and subsequently sub-let the old premises five years ago on a 25 year FRI lease to a printing firm (assume 5-year reviews on-going lease term). The rent was reviewed last month to £345,000 p.a. Using a discounted cash flow procedure, calculate the value of the head lessee's interest (The manufacturing company's leasehold interest) assuming a leasehold target rate of 14% and a rental growth rate of 1.5% p.a., and the cap rate of similar property is at 8 %.

Answer rating: 100% (QA)

To calculate the value of the manufacturing companys leasehold interest we need to determine the present value of the expected future cash flows We ca... View the full answer