From 50753e45aafd32d94253d83d3a010d031fdd35ab Mon Sep 17 00:00:00 2001 From: Meagan Chappel Date: Sat, 21 Jun 2025 13:18:26 +0800 Subject: [PATCH] Add Why Ground Lease REITs are Building In Popularity --- ...-Lease-REITs-are-Building-In-Popularity.md | 53 +++++++++++++++++++ 1 file changed, 53 insertions(+) create mode 100644 Why-Ground-Lease-REITs-are-Building-In-Popularity.md diff --git a/Why-Ground-Lease-REITs-are-Building-In-Popularity.md b/Why-Ground-Lease-REITs-are-Building-In-Popularity.md new file mode 100644 index 0000000..cae2608 --- /dev/null +++ b/Why-Ground-Lease-REITs-are-Building-In-Popularity.md @@ -0,0 +1,53 @@ +
As more residential or commercial property owners in need of liquidity use ground rents to unlock capital, [real estate](https://hauntley.com) investors could enjoy the benefits.
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Numerous openly traded property trusts (REITs) have faced obstacles in the previous year, with returns largely tracking stock exchange indexes. But REITs that are concentrated on ground leases - owning the land without owning the structures that rest on it - have been an exception.
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Splitting the ownership of commercial land from the structures that rest on it isn't a brand-new idea. In some ways, it's the very same financial structure that middle ages [royalty](https://luxuryproperties.in) used with its subjects. But the democratization of ground leases and their growing appeal is reflective of other kinds of securitization throughout the economy - producing narrower and more concentrated return attributes to suit the requirements of different classes of financiers.
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And with commercial office realty, in particular, in a popular state of post-lockdown upheaval, the ability to create a de-risked realty asset has been warmly accepted by financiers.
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At present, Safehold (SAFE) is the sole publicly traded ground lease REIT pure play. It will likely be one of a number of on the market in the coming years, prompting other more conventional REITs to diversify their holdings with land leases.
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We have actually already seen this with a mega-deal including Real estate Income and Wynn Resorts. In a deal valued at $1.7 billion, Wynn Resorts sealed a sale/leaseback arrangement with Real estate Income, a conventional REIT, for its Encore Boston Harbor advancement, a hotel, gambling establishment and theater job six miles south of Boston.
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Unlocking capital when in need of liquidity
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Residential or commercial property owners are utilizing ground leases to unlock capital in locations where liquidity is doing not have. With local banking tightening up loaning - even with the specter of lower rate of interest - we are now seeing land lease queries soar. In my own land lease specialized practice, we are fielding more questions from owners and developers in all property sectors.
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One requires to only look at numbers promoted by Safehold. Tim Doherty, Safehold's head of financial investments, said in a news release that the business has actually expanded land lease offers from 12 in 2017 to 130 in 2022, with the value of the portfolio at more than $6 billion. He attributed the growth to a new level of sophistication in the land lease market, adopting strategies such as predictability of lease payments, a move that causes more effective pricing. Over the last three months of 2023, Safehold stock was up nearly 40%.
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Growing appeal of ground leases has not gone undetected. Three years earlier, Dallas-based Montgomery Street Partners began a $1 billion REIT targeted on investments in the country's top 50 markets. High interest from institutional financiers triggered Montgomery Street to expand the pool to $1.5 billion in 2022.
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Murray McCabe, a managing partner of Montgomery Street Partners, said in a press release, "The strong demand we have actually seen for GLR's (ground lease REIT) follow-on equity offering confirms our technique and confirms that ground leases have actually evolved to become an appropriate and mainstream funding tool."
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Clearly, ground lease investment funds are among the emerging trends in property. Ares Management and property personal equity company The Regis Group formed Haven Capital in 2020 to capture growing land lease demand to, in their words, offer "a more efficient kind of funding" that helps unlock possession value.
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These recent developments, in addition to general funding patterns within the real estate industry, develop a pattern that's difficult to ignore: Land lease activity, which has actually grown to a more than $18 billion market in 2022, will only see more deals revealed over the next 10 years. By one estimate, the marketplace might be close to $2.5 trillion in the United States alone, offering a significant runway for growth.
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How does a land lease work?
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Long a staple of family workplaces searching for a steady earnings and foreseeable stream from long-held uninhabited parcels in desirable places, the land lease has actually ended up being commonly welcomed since the lorry provides a win-win circumstance for both the structure owner and the landowner.
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How does a land lease operate? Typically covering a term of 50 to 99 years with renewal choices, a [land lease](https://theeasternacres.com) REIT or sponsor obtains the land from the building owner. This arrangement makes it possible for the designer to release important capital, directing it toward locations with higher return potential. Simultaneously, the building owner maintains complete control of the asset while divesting the land beneath it, which, though useful in the development process, supplies little go back to the general job. The lease is customized to fit the job.
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The Boston Harbor Development acts as an illustration of the enduring use of land leases in the hospitality industry. Additionally, this [approach](https://mrajhi.com.sa) has actually found popularity in retail, fitness centers and fast-food outlets. Now, numerous industries are [recognizing](https://www.homesofrockies.com) the value of this idea. Ground rent payments consist of established annual lease increases.
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" Proof of principle continues to spread," Safehold's [Doherty](https://seedrealty.in) said.
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As the benefits to a job's capital stack ended up being readily apparent, ground leases will gain broader acceptance and be regularly employed as a crucial element in the realty market. Predictions suggest that ground leases will end up being mainstream within the next 5 to 10 years, providing a spectrum of investment opportunities for astute players.
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