Benefits of a Ground

Question

Most owners either don’t know anything about ground leasing or they’ve only heard part of the story, so we created an informational website (groundlease.nyc) to help educate them. The way ground leases are structured opens opportunities for owners who don’t want to sell but are still open to doing a deal. Ultimately, owners should understand that a ground lease is just like any other type of real estate transaction in that both sides of the table need to feel like they’re making a deal that works for them economically.On the other side of the equation, an investor who’s looking to purchase an office property south of 96th street in Manhattan should understand that there are only roughly 1,571 office buildings that are over 20,000 square feet, which means there’s a finite amount of inventory. This knowledge helps tenants approach deals creatively as well.

SKYLINE PROPERTIES · Accepted Answer

Ground leases make the most sense for long-term property owners who aren’t prepared to make the necessary capital improvements required to maximize their property’s upside potential. Someone who owns a plot of land, a property with significant air rights, doesn’t want or need to build, or someone who wants to ensure that their property remains in the family to produce generational income would also benefit from considering a ground lease..

SKYLINE PROPERTIES · Answer

The property title never transfers to the tenant; therefore, the owner stays the owner of the property while generating income on the property. The owner is not responsible for capital gains tax, unless there is an upfront payment, and in some cases the owner is eligible to avoid transfer tax payments. The property also remains in the family, which means the asset will generate a hassle-free income stream for generations to come.The ground lessee (the tenant) is responsible for all the management, costs, and expenses of the leased property. By making capital improvements to the existing structure or in the case of a development site, constructing a new building the ground lessee will maximize the potential and improve the property. Many ground leases contain a reversionary clause, which transfers any improvements made by the tenant to the landlord at the end of the lease.

SKYLINE PROPERTIES · Answer

Many developers and commercial tenants have long been faced with property owners who ask for a price that isn’t supported by comparable deals. The owners are emotionally attached to the asset, and they’d rather sit on it than do a deal that makes sense for both parties. The tenant’s basis is significantly reduced because they don’t need to invest upfront capital for a purchase. If an owner is unwilling to sell, a ground lease can still get a deal done that will give them long-term access to prime locations.

Robert Khodadadian I The Real Deal Magazine

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