More and more businesses are turning to ground leases to fuel their growth. Consider the following facts:

– A typical ground lease is 10-20 years.

– The benefit to a business is less capital committed to a new location because they 'rent' the land. The benefit to the land owner is a lease with a regional or national credit tenant without the added development costs for constructing the improvements. These ground leases typically sell for lower CAP rates (higher sales prices) for the following reasons:

1. No construction costs for the building are added into lease rate. This makes an annual lease rate lower than it would be if the costs of improvements were included, thus there are more potential purchasers.

2. The purchaser doesn't pay for improvements the business constructs so original cost vs. residual value doesn't enter into the investment analysis. Any residual value of the improvements at the end of the lease is a bonus for the landowner.
Back | Next