Ground Lease Advisory
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 skill sets 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 that is focused on capitalizing leased fee and leasehold positions, we have the requisite capabilities to structure ground leases for any scenario.
An Owner May Seek to Execute a Ground Lease For a Number of Reasons, Including:
- Does not wish to execute an outright sale of a development site to avoid a lump sum tax payment
- Desires to capture upside but does not wish to enter into a joint venture via land contribution
- Cannot identify or lacks expertise to invest into an alternative real estate asset
- Wishes to create passive income vehicles in preparation for retirement or estate planning
Major Financial Issues to Consider When Structuring a Ground Lease:
- 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
