Ground Lease, Leased Fee and
Leasehold Valuation in Hawaiʻi
A leased fee valuation measures what a landowner's interest in ground-leased land is worth: the right to collect ground rent for the rest of the lease, plus the land and any improvements when the lease ends. A leasehold valuation measures the tenant's side. In Honolulu and across Hawaiʻi, where much commercial land is ground leased, both values often differ sharply from fee simple.
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We Read the Lease
First
The Benavente Group values leased fee, leasehold and fee simple interests from our Honolulu office for landowners, trusts, lessees, buyers and lenders across Oʻahu, Maui, Hawaiʻi Island, Kauaʻi and the Pacific. Our MAI and SRA designated appraisers read the lease first, because in a ground lease the document decides the value as much as the land does.
Why Hawaiʻi Has So Much
Leasehold Land
For generations, large tracts of land in Hawaiʻi have been held by a small number of landowners, including trusts and estates that lease land rather than sell it. Commercial districts, industrial areas, resorts, condominiums and homes have all been built on ground-leased land. The result is a market where buyers routinely pay for a building they own on land they rent, and where landowners hold income streams that last decades.
That structure makes Hawaiʻi different from almost every mainland market. A mainland appraiser can value a building assuming fee simple ownership. In Hawaiʻi, assuming fee simple when the property is leasehold can overstate value badly, and assuming the wrong lease terms can misstate it in either direction.
Valuing the Leased Fee
and the Leasehold
One property can hold several interests, each with its own value.
| Interest | What the owner holds | What drives its value |
|---|---|---|
| Fee simple | What the owner holdsLand and buildings, unencumbered | What drives its valueMarket rent, market cap rates, highest and best use |
| Leased fee | What the owner holdsGround rent for the remaining term, plus the reversion at lease end | What drives its valueContract ground rent, reopening dates, remaining term, value of the reversion |
| Leasehold | What the owner holdsUse of the land and ownership of improvements for the term | What drives its valueRemaining term, rent advantage or disadvantage, surrender terms |
The leased fee
We value the landowner's interest by projecting the contract ground rent through each fixed period and reopening, then adding the present value of the reversion: the land, and often the improvements, returning to the owner when the lease ends. The discount rate reflects the security of the rent and the length of the wait.
The leasehold
We value the lessee's interest by measuring the income the property earns after ground rent, over the remaining term. As the term shortens, leasehold value falls, often steeply in the final years, because buyers and lenders shy away from short remaining terms.
Contract rent vs market rent
When a ground rent sits below market, value shifts toward the lessee. When it sits above the market, value shifts toward the landowner. Measuring that gap is central to both sides.
What We Need to See
- The full ground lease and every amendment
- Rent schedule, reopening dates and the reopening method
- Permitted and prohibited uses
- Surrender, reversion and improvement ownership clauses
- Assignment and subletting provisions
- Any recorded covenants, easements or use restrictions
Ground Lease
Rent Reopenings
Many Hawaiʻi ground leases reset rent at fixed dates, often based on the land's fair market value and a rate of return. A reopening changes both the leased fee and the leasehold value, so it belongs in any valuation done within a few years of the date.
Under HRS §519-1, when a lease of private land ties renegotiated rent to the land's fair market value or highest and best use, that value is calculated on the use the lease restricts the land to. We build that rule into every leased fee and leasehold value we prepare near a reopening.
Lease-to-Fee
Conversions
A lease-to-fee conversion happens when the lessee buys the land underneath, merging the two interests into fee simple. The price is usually negotiated around the value of the leased fee interest.
Hawaiʻi has used several conversion frameworks over the years. Chapter 516 of the Hawaiʻi Revised Statutes created a process for single-family residential leaseholds. For condominiums and cooperatives, Chapter 514C gives associations a right of first refusal when the leased fee is sold. Today most commercial and many residential conversions are negotiated sales between owner and lessees.
In each case, both sides need an independent answer to the same question: what is the leased fee worth to the landowner, and what is the merged fee simple worth? The difference between the two is the value the conversion creates. For a condominium, the appraisal may also need to allocate the leased fee price across individual units.
Leased fee
The landowner's interest
Leasehold
The lessee's interest
Merged
Fee simple
Use Restrictions That
Change Value
A missed restriction is one of the most expensive errors in leasehold valuation.
Ground leases often limit what a property can be used for: a specific business, a building type, a maximum density, or a use that made sense decades ago. Those restrictions bind the value. A parcel that could support a high-rise under zoning may be worth far less if the lease limits it to a low-rise retail center for another thirty years.
We read the lease, the recorded documents and the county records before concluding a value, because a missed restriction is one of the most expensive errors in leasehold valuation.
Ground Lease Valuation
Across the Islands
Ground leases appear in every Hawaiʻi market, and each island has its own pattern.
| Market | Typical ground leases |
|---|---|
| Honolulu and Oʻahu | Typical ground leasesLeasehold commercial buildings downtown and in Kakaʻako, Waikīkī hotels and condominiums on leased land, industrial ground leases around Māpunapuna, the airport and Sand Island, and leasehold homes in Windward and East Oʻahu neighborhoods |
| Maui | Typical ground leasesResort and commercial ground leases in Kāʻanapali, Wailea and Kahului |
| Hawaiʻi Island | Typical ground leasesCommercial and resort ground leases in Kailua-Kona, Waikoloa and Hilo, including State-leased land |
| Kauaʻi | Typical ground leasesCommercial and resort ground leases around Līhuʻe and Poʻipū |
| Guam, Saipan and the Marshall Islands | Typical ground leasesLong-term leases of private and government land, which are the norm in Saipan and the Marshall Islands, where land ownership is restricted |
Both Sides of
the Ground Lease
| Client | How we help |
|---|---|
| 01Landowners and trusts | How we helpLeased fee values for sales, reporting and portfolio planning. |
| 02Lessees and building owners | How we helpLeasehold values for purchases, sales and refinancing. |
| 03Buyers of either interest | How we helpAcquisition values before an offer. |
| 04Lenders | How we helpCollateral values that reflect the remaining term and ground rent. |
| 05Associations of apartment owners | How we helpLeased fee values ahead of a conversion. |
Frequently Asked
Questions
- Fee simple is full ownership of land and buildings. Leasehold is the right to use land and its improvements for a set term under a ground lease, while someone else owns the land. Our guide to fee simple vs leasehold explains more.
- The lessee has fewer years of use left, and when the lease ends the land, and often the building, returns to the landowner. Buyers and lenders also become cautious about short remaining terms, which narrows the market.
- Rarely. A leased fee is worth the present value of the ground rent plus the reversion. If the ground rent is below market, or the reversion is decades away, the leased fee can be worth well below the land's fee simple value.
- Yes. Lenders need the leasehold value, and they look closely at the remaining term against the loan term. We report both clearly.
- Usually by negotiation, informed by an appraisal of the leased fee interest. Both sides often commission their own appraisal.
- Yes. We value leasehold and leased fee interests in Honolulu condominiums, including allocations across units for a conversion.
- Yes. We value ground lease interests on Maui, Hawaiʻi Island and Kauaʻi, and in Guam, Saipan and the Marshall Islands.
Ready for Credible,
Timely Results?
Send us the ground lease and tell us which interest you need valued. We'll confirm the scope, fee and delivery date.
Prefer to talk? Call (808) 784-4320