When a CLT splits the value of the land and buildings, don’t the buildings actually decline in value over time?

Over time buildings should decline in value as they become older and closer to the end of their useful life.  Land, on the other hand, generally rises in value over time.  However a land trust homeowner owns not only the building but also the right to occupy the land which is conveyed for 99 years through a ground lease.  The value of this combined property (called the leasehold value) generally rises over time along with other property in the market.  For this reason, CLT leases must impose a resale pricing formula to cap the sale value of the home.  Without such a restriction the homeowner’s leasehold value could easily rise beyond the affordable level.  Simply “removing the land” is not sufficient to protect affordability in a rising market.

Anyone interested in the arcane details of the appraisal of leasehold property should consult Fannie Mae’s well thought out appraisal guidelines for leasehold mortgages.

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