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Back to the future with the dual lease-hold rate

Gabrieli, Tommaso; (2023) Back to the future with the dual lease-hold rate. Presented at: 29th European Real Estate Society (ERES) Annual Conference, London, UK. Green open access

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Abstract

We are contemporary real estate valuers who use 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.

Type: Conference item (Presentation)
Title: Back to the future with the dual lease-hold rate
Event: 29th European Real Estate Society (ERES) Annual Conference
Location: London, UK
Dates: 12 - 15 July 2023
Open access status: An open access version is available from UCL Discovery
Publisher version: https://2023.eres.org/
Language: English
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment > The Bartlett School of Planning
URI: https://discovery.ucl.ac.uk/id/eprint/10179292
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