The rules that make a Delaware statutory trust work for exchange purposes also make it nearly inert. It is an odd fit for most real estate, because most real estate needs managing. It is an unusually clean fit for a long bondable ground lease, which needs none.
A ninety-nine year unsubordinated ground lease with fixed contractual escalations does not require a renegotiation, because the rent schedule is written for the whole term. It does not require refinancing, because the fee can be held unlevered. It does not require capital expenditure, because the tenant owns and maintains the improvements and the landlord's obligations are close to none.
Every other asset class pays a real cost for those restrictions. A ground lease pays none, because it was never going to do any of those things anyway.
A leased fee under an unsubordinated ground lease is the land, the contractual right to rent for the term, and the right to the improvements at expiry. It sits ahead of the leasehold mortgage. The tenant pays taxes, insurance, maintenance and every operating expense, and the rent is due without offset or abatement.
There is no vacancy to re-lease, no tenant improvement allowance, no roof, no parking lot and no leasing commission. What looks like a thin return is the price of an obligation with very little that can go wrong operationally.
The word doing the work is bondable. That means rent is absolute: payable without offset, abatement, deduction or counterclaim, and it does not stop for casualty or condemnation. A lease with rent abatement on casualty is not bondable and behaves very differently in a structure that cannot renegotiate.
Check three more things. Whether rent is a fixed ascertainable sum or carries a fair market value reset, which is a problem for financeability and for anyone underwriting a fixed income stream. Whether the lease is unsubordinated. And whether the leasehold mortgagee protections are the institutional package, since the quality of the tenant's financing is the quality of your rent.
Newly created leased fee positions do not come to market often, because most ground leases in existence were written decades ago on terms that would not pass a modern lender's review. The clean ones are usually created rather than found.
That is what we do. We buy land under commercial real estate and write the lease to an unsubordinated ninety-nine year institutional form, conforming to the published agency leasehold-mortgagee standard.
Nothing here is an offer of a security. Trust interests are securities sold through licensed broker-dealers. We are a real estate principal and this page is explanatory only. Confirm exchange mechanics with your qualified intermediary and CPA.
In summary: no new or renegotiated leases except on tenant insolvency, no refinancing, no reinvestment of proceeds, no more than minor capital expenditure and no active management.
Because a long bondable ground lease requires no leasing, no capital work and no refinancing. The trustee has nothing it is prohibited from doing.
Rent is payable absolutely, without offset, abatement, deduction or counterclaim, and it does not abate for casualty or condemnation.
For financeability, yes. Agency leasehold guidance requires rent to be a fixed ascertainable sum and treats reappraisal-based resets as unacceptable.
The tenant. The landlord's obligations under an unsubordinated ground lease are minimal by design.
Most existing ground leases were written decades ago on terms a modern lender would reject. Clean institutional-form positions generally have to be created.
We write ninety-nine year unsubordinated leases conforming to the published agency leasehold-mortgagee standard. The mechanics are checkable without a call.
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