We are indisputably living in interesting times. In every cycle, the (insert your choice here) pendulum tends to swing wide causing uncertainty. Today, we are living through a disruption of the economic status quo due to the pandemic, social unrest/engineering, and questionable monetary policies. And yet, the band plays on as transactional appetite – if not volume – is at all time highs.
Institutional investors with actuarial return requirements do not have the luxury of sitting this one out; everyone must play. Private investors sitting on holdings continue to have the option of: do something (sell, joint venture, or build) or do nothing.
The choice becomes more difficult for those sitting on low or non-income-producing land. For this asset class, doing something is replete with multiple pitfalls: taxes today or facing a potential future loss of 1031 benefits, entering into a partnership with a risk exposure many do not understand or know how to underwrite, or facing a daunting task of developing something for the first time. Nevertheless, doing nothing doesn’t look so great either; trapped equity with a potential 1031 expiration is (in today’s political climate) a real risk, as are carry costs potentially increasing as property taxes are expected to rise in many states suffering from deficits (topic for another day).
An emerging option is a modernized version of the ground lease. An owner seeking to avoid a lump sum tax payment, avoid development or partnership exposure, or one who simply wishes to create a passive income vehicle can retain their interests in a leased fee ownership position while a more entrepreneurial party takes over as a lessee.
Ground leases are complicated instruments to begin with and have even more idiosyncrasies on development deals. Throw in the broad spectrum of potential deal cycles (pre/post entitlement or pre/post site plan), and you have a lot to unpack.
Our company is the market leading ground lease advisory firm with a track record of success representing land owners. We have structured multiple ground lease transactions with institutional counterparties and believe strongly that for many, it is the single best option to monetize a land position. A little-known secret is that land once subject to a properly structured ground lease will be valued closer to a fixed income instrument and, as such, will trade at a higher value than pure land. There have been cases wherein buyers not able to negotiate a reasonable price with sellers have turned to us to structure a win-win situation using a ground lease.
– David Eyzenberg (Adjunct Professor at NYU Schack & UM Herbert Business School)
Eyzenberg & Company is the preeminent firm advising owners and tenants on structuring viable and financeable ground leases. A ground lease is a special financial product requiring a confluence of skillsets and knowledge base that is not currently present among the disparate business verticals of most real estate firms.
Due to our experience as both a leased fee principal investor and investment banker focused on capitalizing leased fee and leasehold positions, we have the requisite capabilities to structure ground leases for any scenario
Preferred post-entitlement or with site plan approval
Pre-entitlement is possible but will require additional structure due to the ambiguity of the final product
All other commercial properties are acceptable but less desirable in today’s market
Multifamily or Multifamily-majority Mixed Us
Major Financial Issues to Consider
Subordinate vs. non-subordinate
Valuation of land vs. ground lease
Capitalized basis of starting ground rent
Various ground rent overage ratios (will vary dependent on asset class)
Completion guarantor requirements and obligations for development scenarios
Control and allocation of condemnation and casualty proceeds
How to structure rent escalations to protect owner from inflation
How to structure rent resets that lack economic ambiguity and do not create asymmetric risk for either party
Valuation options for future changes in the development site
Timing of future economic changes to the ground rent payment stream and their effect on the net present value
Select Deals in the Market Seeking Capital
$55MM | SFR | Recapitalization | Myrtle Beach, SC
$63MM | Retail | Acquisition | Las Vegas, NV
$58MM | Multifamily | Development | Fort Myers, FL
$14MM | Multifamily | Development | Aubrey, TX
$100MM | Multifamily | Development | New York, NY
Select Deals Seeking Developers
$21MM | Multifamily | Development | Panama City
207-Unit Co-Development $45MM | Multifamily | Development | Pensacola, FL
428-Unit Leasehold Development $97MM | Multifamily | Development | Miami, FL
Real Estate Capital Alliance (RECA) Q2 2022 Production Statistics
Eyzenberg & Company is a proud member of the Real Estate Capital Alliance (reca.us). RECA members arranged over $4 billion in capital in 2020. Below are the complete RECA production statistics for Q2 2021.
Aruyel Nurbekova joined Eyzenberg & Company in 2022 as Junior Analyst. She assists with underwriting, analysis, and financing memoranda preparation for commercial real estate debt and equity capitalization assignments.
Prior to joining the firm, Ms. Nurbekova worked as a Business Valuation Analyst at Ernst & Young company, one of the Big Four accounting firms.
Ms. Nurbekova completed her Bachelor of Science degree in Corporate Finance and Investment Management at KIMEP University in Almaty, Kazakhstan.
D: (305) 995-0777
Mr. Muniak joined Eyzenberg & Company in 2022 to focus on debt and equity originations in his newly adopted home of South Florida.
Mr. Muniak is Co-Founder and Managing Partner at Makal Equities, a real estate investment firm specializing in multifamily, industrial and retail property in Southern California and New York. He invested, sourced, and underwrote all commercial development and investment opportunities during this time. Furthermore, Mr. Muniak’s previous position as Managing Director at a Family Office in New York allowed him to develop his skills as he increasingly became involved in all aspects of fundraising and deploying the fund’s investment mandate. In his career to date he has invested, sourced, and underwrote commercial development and investment contracts, exceeding 100 million dollars.
Furthermore, Mr. Muniak is a Board Member and shareholder of the Mangia Hospitality Group in New York, where he oversees all aspects of fundraising, including the Group’s investment mandates. As a strategic dealmaker, Mr. Muniak is responsible for retail acquisitions & new developments and acts as a liaison with City and State Government bureaus. Due to his established reputation as a key player in the real estate and hospitality industry, Mr. Muniak has managed to build a wide portfolio of bicoastal projects and has worked closely with top developers, entrepreneurs, and restaurateurs nationwide.
Originally from New York City, Mr. Muniak graduated from Johnson & Wales University in Rhode Island, and completed his graduate Business certificate in Sydney, Australia. He is a long-time martial artist and a philanthropist.