Sunday, December 9th, 2018 December9th2018

Sell for More Trivia: What is a ground lease?

Published on December 9th, 2018

Beau Beach

Sell for More Trivia is a weekly blog series that playfully presents a trivia question about commercial real estate.

 

Ground leases are simply a lease of the land only. Usually land is leased for a relatively long period of time (50-99 years) to a tenant that constructs a building on the property. A ground lease separates ownership of the land from ownership of the building and improvements constructed on the land.

Benefits of a Ground Lease

A ground lease lets a tenant build on property in a prime location that he could not otherwise purchase. For this reason, large chains like Whole Foods, McDonald’s, Chik-fil-a and Starbucks often utilize ground leases.

A ground lease also does not require the tenant to have a down payment for securing the land – like purchasing the land would require. Therefore, less cash is needed for a ground lease, which frees up cash for other purposes.

In addition, the landowner gets a steady stream of income from the tenant while retaining ownership of the property.

A ground lease typically contains an escalation clause that guarantees increases in rent and eviction rights that provide protection in case of default on rent or other expenses.

Another benefit to landowners is that ground leases normally have a reversionary clause, which transfers ownership of the improvements to the landlord at the end of the lease.

Ground leases are an important component of many commercial real estate deal structures. Yet for a lot commercial real estate brokers they’re rarely encountered and are poorly understood.

 


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About Beau Beach, CCIM

Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.

Beau leads Prowess IRES which is a commercial real estate broker for sellers in the Nashville, Milwaukee, South Florida and Chicago markets.

He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.

Beau can be reached at 414.324.4938, 615.603.9770, click to schedule a call or Beau@ProwessIRES.com