| It's not news that one of the hottest | | | | Since there's no need to finance the |
| commodities on the market today is commercial | | | | acquisition of the land, the developer/lessee |
| property. Developers and investors in Houston | | | | has more capital available for building and |
| are scrambling to acquire land that is almost | | | | construction. |
| guaranteed to increase in value, many | | | | |
| retailers and commercial developers are | | | | - Ground lease payments offer a tax advantage |
| overlooking the advantages of developing and | | | | |
| building on property that they don't own. | | | | Lease fees can be deducted as a business |
| | | | operating expense on taxes, reducing the tax |
| Municipal ground leases have a long history. | | | | burden on the lessee. The lease fees will |
| It's not unusual for a city or town to lease | | | | nearly always be a greater deduction than |
| land to educational institutions, for | | | | interest paid on a commercial mortgage, and |
| instance, retaining ownership of the land | | | | the lessee will not be responsible for tax |
| while giving the lessee the control needed to | | | | payments on the land. |
| make improvements to the property. Those | | | | |
| leases generally run for terms of 99 years, | | | | - Lessee is protected from downturns in the |
| and often carry nominal lease fees. The | | | | real estate market |
| advantage to the city is clear - they are | | | | |
| home to an institution that adds value to the | | | | The real estate market is volatile. A |
| community, increasing the value of other real | | | | lessee's investment in a ground lease |
| estate and making the community a more | | | | commercial property is not dependent on the |
| desirable place to live. The lessee also | | | | increasing value of the land. Rather, their |
| gains an advantage - they don't need to | | | | retail or commercial activities provide added |
| purchase the land on which they sit. | | | | value. |
| | | | |
| Terms tend to run for much shorter lengths of | | | | As with any real estate transaction, there |
| time - as short as 5 years, though 30 year | | | | are both pros and cons to taking on a ground |
| terms are common for a ground lease for sale. | | | | lease for sale. Houston residents, a great |
| The advantages of these leases is for the | | | | deal depends on the terms of the lease and |
| landowner - the landowner retains ownership | | | | its flexibility. It is definitely an option |
| of the land and ensures a steady income from | | | | worth considering, however, particularly in |
| the rent paid on the property. In addition, | | | | an area where outright purchase - as in |
| ground lease terms often specify that | | | | master planned communities - may not be an |
| improvements to the property revert to the | | | | option. The opportunity to enter into a |
| owner at the end of the lease term. But what | | | | long-term ground lease with the owners |
| advantages are there for the tenant in a | | | | developers of a major master planned |
| ground lease arrangement? | | | | community can offer the flexibility and |
| | | | benefits needed for a successful retail |
| - Frees capital that would be paid for land | | | | operation with a ready market of both |
| acquisition | | | | consumers and employees. |
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