The direct answer
Initial ground-rent yield divides annual rent by land value. Present value of ground rent discounts the specified future rent stream. These answer different questions, and neither automatically includes land reversion or every right in the lease.
Identify the rights and income being modeled
A ground lease can have rent changes, resets, options and other terms that affect future cash. The simple model uses an annual growing payment sequence over a whole-year horizon. It does not interpret the lease or value all leased-fee interests. Confirm that the first-year rent and growth assumption represent the cash schedule you actually intend to analyze.
To apply the approach to an editable scenario, use the Ground Lease Calculator. For the neighboring question, explore Cell Tower Lease Buyout Calculator.
Distinguish initial yield from discounted income
Initial yield summarizes one year relative to current land value. Rent PV also depends on term, escalation, discount rate and the year-end payment convention. The calculator uses the growing-annuity relationship and its equal-rate limit. A high initial yield does not establish the risk, timing or value of the whole future income stream.
Keep reversion and other values separate
The rent-present-value output excludes the land’s residual value at the end of the term. Adding a reversion requires a separately stated value, timing and discount assumption. Rent resets that differ from constant growth also need another schedule. The tool is a transparent income scenario, not a formal valuation or an assessment of enforceable lease rights.
Worked example
At $100,000 first-year rent and $2,000,000 land value, initial yield is 5%. Under the linked growth, term and discount assumptions, rent PV is about $1,232,005.91. That PV represents the modeled payments only and is not the sum of payment PV plus a future land reversion.
Common mistakes and limitations
Do not assume that the land value or reversion has already been included in the rent PV. Do not model a stepped reset as smooth annual growth without labeling the simplification.
Lease renewal, reversion rights, subordination, credit risk and legal provisions are not automatically valued.
Frequently asked questions
Does rent PV include ownership of the land at expiry?
No. It includes the scheduled rent stream only.
Can initial yield and PV respond differently?
Yes. PV depends on the full payment horizon and discount assumptions, while initial yield uses one year and current value.
Sources and further reading
The article’s examples are illustrative arithmetic. The references below provide context for operating, valuation or transaction concepts; they do not endorse the assumptions or the calculator.
- Office of the Comptroller of the Currency — Comptroller's Handbook — Commercial Real Estate LendingNOI, direct capitalization, cap-rate valuation and DCF concepts for commercial real estate.
Read our editorial policy for the scope of these educational methods.