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