President of Ground Lease Capital Partners, Steve Waldman, joins Jonathan on this episode for an encore interview to talk about ground leases. Did you know that you can buy a piece of land without the building on top of it, and then give the building owner a lease to be located on your land? This is called a ground lease. Steve has made a career out of them by helping building owners increase their returns by stripping out the land piece from the property and helping his own investors make returns by owning that land. In this interview, Steve walks through the process of exactly how you make money doing this kind of ground lease deal. Don’t miss what he has to say.
What Ground Lease Capital Partners does
Ground Lease Capital Partners create, buy, sell and own ground leases. They take an existing building and will buy the land for about 35-40% of the value from the current ownership. Then, they will lease back to the building owner under a 99-year lease. The fee owner owns the ground and the leaseholder or tenant is the person with the building. The separates the ownership of the building from the ownership of the land and creates separate interests. The landowner acts as a landlord, with the building owner paying for the right to use the land the building is on.
Advantages to splitting ownership
There are many advantages to splitting ownership between a piece of land and the building on it. From the land owner’s side, this is a super secure, safe way to invest in real estate. If there is a default on the lease, you don’t go through the foreclosure process. Instead, you go through an eviction process where you will get control of the building. From the building owner’s perspective, you need less capital for a transaction where you only own the building. There is less equity to put in, and you can get financing and hold your position for 99 years. You get the future upside of the property and the ability to control rents to those using the building. The building is also an asset that can depreciate 100% Be sure to listen as Steve explains the benefits from both sides even further on this episode!
The difference between ground leases and triple net leases
There are differences between triple net leases and ground leases that Steve explains. A triple net lease is where the tenant pays for taxes, insurance, and the maintenance of the property. There is no separation between the ground and the building. You would be familiar with triple net leases where a property owner allows a fast food restaurant to lease the land and building. However, a ground lease is where you own the property and lease the land that the building is on for 30 years or more. There are many similarities between the two, but in many triple net leases, you – as an investor – are often times overpaying for the property because of the quality of the tenant. This is not the case with a ground lease.
Why ground leases are good investments
Steve explains that ground leases make an excellent investment for the investor who wants a better return than getting a CD. A ground lease is a great alternative to a bond. Since most ground leases come with a 99-year lease, they are an excellent investment for someone who wants to provide for future generations – for children who cannot manage money on their own. It is a very safe, bond-like vehicle for passing on wealth to children and grandchildren. Be sure to hear Steve explain more in this interview.
In This Episode Waldman says…
- [1:48] Who he is and what he does
- [4:26] Advantages to splitting ownership
- [7:14] How to get into a land lease
- [9:09] Ground leases explained
- [14:40] What happens at the end of the lease
- [19:28] Where Steve’s company does ground leases
- [22:25] Difference between ground leases and triple net leases
- [24:45] How Steve got into this business
- [27:46] The typical investor profile
- [33:06] How to divide a property
- [38:48] Why ground leases are the most passive form of real estate investing
- [39:39] Advantages and disadvantages of doing it yourself
Resources Mentioned In The Episode
- Jonathan@MultifamilyLaunchpad.com – Learn to be an asset manager and Investor
- Bellwether Enterprise(sponsor) – contact Will Oldham firstname.lastname@example.org
Connect with Steve Waldman
- SWaldman (at) GroundLeaseCap.com