What is a
Ground Lease?
A ground lease is a method for separating ownership of the
improvements (building) from the ownership of the underlying fee (ground).
Typically ground leases are long term Net Leases where the tenant pays all
expenses except debt service. Any financing for the improvements are paid for
by the tenant. In some cases the ground lease is subordinated to the debt on
the improvements.
On unsubordinated ground lease, no lien is placed against the fee
simple title to the land. Instead, the leasehold estate is the primary security
for any debt on the improvements. There is no depreciation with the ownership
of a ground lease.
Many investors favor ground leases because they don't need to use
their own funds to build the improvements yet end up owning the improvements on
termination of the lease. When the Net Lease ends the improvements revert to
the owner of the ground lease the owner benefits from the full rent for both
the land and the improvements.
Tenants like ground leases because they reduce the tenant's cost
of development by eliminating land acquisition costs. A long term Net Lease
provides predictable rent payments that are deductible by the tenant for
federal and state income tax purposes.
Typically ground leases are
long term Net Leases and include set rent escalations, foreclosure rights and
reversionary right (improvements revert to owner of ground lease
at termination of the lease).
J. Michael Sigrist
Compass Investment Properties, Inc.
861 W. Morse Blvd. #250
Winter Park, Fl. 32789
Office 407-647-5111
Fax 407-629-9220
Cell 407-953-2605
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