Property Valuation
An Indiana office building has a 5-year lease at $20/sqft for 10,000 sqft. Market rent is currently $25/sqft. The value impact of the below-market lease is:
ANo impact — leases don't affect value
BA negative impact — the below-market lease creates a 'leasehold value' for the tenant but reduces the property's 'leased fee' value✓ Correct
CA positive impact — all leases increase value
DOnly impacts future sales, not current value
Explanation
A below-market lease reduces the property's leased fee value because the owner is receiving less than market income. The difference between contract rent and market rent creates intangible leasehold value for the tenant.
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