Ground Lease
A ground lease is a long-term lease (typically 50–99 years) of land only, under which the tenant builds and owns improvements on the land but pays rent to the landowner.
What it means
In a ground lease, the landowner (the ground lessor) retains ownership of the land; the tenant (the ground lessee) builds and owns the building and improvements. When the lease expires, improvements revert to the landowner.
Ground leases show up in two main forms. (1) Free-market ground leases: land-rich owner (often a university, church, or family) monetizes without selling. (2) Credit-tenant retail ground leases: a fee owner ground-leases to a credit tenant who builds its own store (Starbucks, Chick-fil-A, McDonald's) — the landowner has an absolute-net-like income stream with even less operational exposure than a triple net fee investment.
Ground lease investments trade at very tight cap rates because of their simplicity and credit.
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