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References
NAR Library & Archives has already done the research for you. References (formerly Field Guides) offer links to articles, eBooks, websites, statistics, and more to provide a comprehensive overview of perspectives. EBSCO articles (E) are available only to NAR members and require the member's nar.realtor login.
Ground Lease Definition
A long-term lease of land in which the tenant will erect improvements at its own expense. Not a desirable arrangement from the tenant's point of view, but sometimes the only way to gain access to extremely valuable real estate in an excellent location. The owner may be willing to sell, or the owner may have received the property by gift or deed (such as a church or university) and be prohibited from selling for some period of time. At the end of the lease term, the improvements become the property of the landowner.
Source: The Complete Real Estate Encyclopedia (New York, NY: McGraw-Hill, 2007)
Ground Lease Basics
What Is a Ground Lease? (The Motley Fool, Nov. 10, 2023)
“As the name implies, a ground lease only involves leasing the ground -- not any buildings. A ground lease involves undeveloped commercial land that is leased to tenants, who then have the rights to develop and use the property for the duration of the lease.”
Ground Lease in Commercial Real Estate (Janover, Feb. 19, 2023)
Ground leases aren’t for everyone; they’re especially ill-suited for small businesses, start-ups, and commercial property investors who wish to flip their property within in a reasonable time-frame.
What Is a Ground Lease in Commercial Real Estate? (Speed Commercial Real Estate)
Given their extended nature, ground leases include regular reviews. These assessments accommodate adjustments based on market dynamics, potential rent hikes, and future lease discussions. It’s also common for ground leases to contain renewal clauses, promoting sustained stability for the tenant’s ventures.
Ground Lease News & Trends
NJ Transit: Ground Lease with LCOR ‘Sets the Stage’ for Hoboken Connect Groundbreaking (Real Estate NJ, Mar. 13, 2024)
According to the agency, the ground lease with LCOR Hoboken Rail Station Redevelopment LLC will facilitate construction of a 27-story, mixed-use building on Observer Highway with 308 market-rate and 78 affordable apartments, plus ground-floor retail space.
Steep Land Lease Increases Could Be a Nasty Shock for Co-ops (Cooperator News, Mar. 1, 2024)
Shareholders in ground lease co-ops should be vigilant about their future. Kicking the can down the road is not a strategy for survival. Review your ground lease and prepare for the future, which might involve a buyout of that lease now.
Expiring Ground Leases Are the Ticking Time Bombs Beneath the Skyline of Any Major U.S. City (Fortune, Feb. 22, 2023) E
Most importantly, building owners need to avoid sleepwalking into a scenario where there’s only a decade or two left on the ground lease. Whenever I see disputes over ground leases that are entering their last few years of the lease term, I shake my head and wonder how the tenants could have let things go unaddressed so long, allowing the power to shift strongly in favor of the landlord. With ground leases typically lasting 50 to 99 years, building owner tenants should be getting clear on their goals and negotiating with landlords no later than 20 or 30 years before the expiration date.
Valuing & Financing Ground Leases
Ground Lease Valuation Model (A.CRE, Jan. 2024)
All sections of the Ground Lease Valuation Model are contained on one worksheet. This is intentional to allow you to insert this model into your own property-level model to make it easier to add a ground lease component to your analysis.
The Problem of Ground Leases (Appraisal Journal, Oct. 1, 2023) E
Recently, there have been some dramatic reappraisals of Manhattan ground-leased properties that have upset traditional ground lease markets. As a result, many leasehold mortgage lenders, which are essential to the financing of ground-leased properties, are avoiding leases with reappraisal clauses. This is affecting the negotiation, financing, and economics of projects in New York and throughout the country and threatens to bring an end to traditional ground lease practice.
With a Challenged Real Estate Investment Climate, Ground Leases Attract a Bigger Following (Wealth Management.com, Aug. 15, 2023)
One factor driving the spike in activity is that some property owners are using ground leases to unlock capital in a market where liquidity is tight. For example, an owner might sell off the ground lease and take out a mortgage on the building to get a better overall blended rate on their cost of capital, noted Renshaw. Or if an owner needs equity to recapitalize a loan or pay for renovations or tenant improvements, a ground lease is an alternative to raise the needed capital rather than looking for loans in a market where traditional lenders have pulled back.
Pros and Cons of Investing in Ground Lease in 2023 (Summerfield Property Management, Feb. 27, 2023)
- Building in a Desirable Location: Tenants can develop a building in a desirable area they otherwise might not be able to buy. Large chain retailers frequently use a ground lease in corporate expansion plans.
- Zero Down Payment: Less equity is needed since the tenant does not need to make a down payment to secure a plot of land (as they would if they were buying). This frees up money for other purposes.
eBooks & Other Resources
eBooks.realtor.org
The following eBooks and digital audiobooks are available to NAR members:
The Art of Commercial Real Estate Leasing: How to Lease a Commercial Building and Keep It Leased (eBook)
Commercial Mortgages 101: Everything You Need to Know to Create a Winning Loan Request Package (eBook)
Commercial Real Estate Investing: 12 Easy Steps to Getting Started (eBook)
Commercial Real Estate Investing: A Creative Guide to Successfully Making Money (eBook)
Commercial Real Estate Investment (eBook)
Complete Book of Real Estate Leases (eBook)
Getting Started as a Commercial Mortgage Broker: How to Get to a Six-Figure Salary in 12 Months (eBook)
Good Commercial Sense (eBook)
The Leasing Process (eBook)
Negotiating Commercial Leases & Renewals for Dummies (eBook)
Wealth Opportunities in Commercial Real Estate (eBook)
Books, Videos, Research Reports
As a member benefit, the following resources and more are available for loan through the NAR Library. Items will be mailed directly to you or made available for pickup at the REALTOR® Building in Chicago.
Commercial Lease Law Answer Book (New York, NY: Vendome Group, 2008) KF 593 C6
Lease Guide: Guide to Writing a Commercial Real Estate Lease Including Green Lease Language (Washington, D.C.: BOMA International, 2008) HD 1384 T23
The Leasing Process: Landlord and Tenant Perspectives (Chicago, IL: Institute of Real Estate Management, 2008) HD 1394 M89
Managing and Leasing Commercial Properties (New York, NY: Wiley, 2007) HD 1394 AL2ma
Negotiating Commercial Real Estate Leases (Chicago, IL: Dearborn, 2001) HD 1384 R22
Negotiate Your Commercial Lease (Bellingham, WA: Self-Counsel Press, 1998) HD 1384 W66
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