For the exchange buyer who is done with toilets, turnover, and 2 a.m. calls: the land under an operating building is fee-simple real property — it qualifies for your 1031 — and it pays a contractual, escalating rent covered 3–4× by the building’s own income, with the tenant handling taxes, insurance, and upkeep. Here is the profile, including the two tradeoffs your CPA will ask about.
A leased fee is real property, so it qualifies as 1031 replacement property. Two honest tradeoffs separate it from buying a building:
| Question | The straight answer |
|---|---|
| Depreciation? | Little to none — land does not depreciate. You are trading tax shelter for safety and zero management. (Your exchange already deferred the old gain; this asset just will not shelter other income.) |
| Passive income? | Careful: when less than 30% of a rental’s basis is depreciable — true of land — the net income is recharacterized as non-passive (Reg. 1.469-2T(f)(3)). It will not absorb your passive losses. Model it with your CPA. |
| Security? | The position sits under the building: rent covered 3–4x by property income, reversion of the improvements at lease end, and default remedies senior to everything above you. |
| Liquidity? | Sellable like any real estate — and unlike fractional passive products, you own the whole fee: no sponsor, no fund lockup, your exit on your timing. |
Where to find one: this is what we make. We originate ground leases under income properties — hotels, multifamily, affordable, mixed-use — and sell the leased-fee positions to long-term income buyers, including 1031 buyers. Tell us your closing window and check size.
Yes. The leased fee is fee-simple real property and is like-kind to the real estate you sold, regardless of the ground lease’s term. Standard 45-day identification and 180-day closing rules apply.
The ground rent: a contractual payment sized so the building’s own income covers it 3-4 times over, with fixed annual escalations. The tenant pays the property’s taxes, insurance, and upkeep; there is nothing to manage.
Usually not, and this surprises people: when under 30% of the property’s unadjusted basis is depreciable — the definition of land — net rental income is recharacterized as non-passive under Reg. 1.469-2T(f)(3). It is still contractual and boring; it just will not soak up passive losses from other deals.
A single-tenant net-lease building gives you depreciation but also a building, a roof, and releasing risk. Fractional passive products pool you with other investors, with sponsor control of the exit. A leased fee is simpler than both: you own the whole land position outright, the building above it is your collateral, and your income is covered 3-4x rather than 1.0x by a single corporate lease.
We originate ground leases under income properties and sell the leased-fee positions to long-term income buyers, including 1031 buyers on a clock. Tell us your closing window and check size, and we will show you what is available or coming.
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