Most ground-lease horror stories are about badly drafted mid-century leases — market resets, short terms, no lender rights. Those risks die at the drafting table. What remains is a short list of real tradeoffs worth pricing, one honest market caveat, and three kinds of deals that should not do a ground lease at all. Here is the whole list.
| The risk | What controls it |
|---|---|
| The rent is forever | Ground rent outlasts every business plan, so it must be sized to be carried easily: ~25% of stabilized income, 3–4x covered, with fixed escalations and no fair-market resets — the reset clause is what wrecked the famous horror stories. |
| The residual belongs to the land | At year 99 the improvements revert. That is a real cost with a present value near zero — but it is why the capital is cheap. Price it against what a JV partner or pref investor takes in the FIRST ten years. |
| The leasehold must stay financeable | Lenders finance leaseholds routinely — when the lease has notice and cure rights, a recognition agreement, new-lease protections, and 30+ years of term at all times. A lease drafted without the lender suite strands the building. Ours is drafted for the next lender before the first one asks. |
| Exit complexity in thin markets | In small private-buyer markets, some buyers simply discount leasehold deals. Where the exit is a local private buyer of a stabilized asset, we will say so honestly — that deal may be better off without us. |
Who should NOT do a ground lease: a stabilized deal with cheap conventional debt available and no capital problem to solve · a thin-margin deal where 3–4x rent coverage is not there · an owner whose whole thesis is a near-term sale to private buyers who dislike leaseholds. Ground leases are for capital problems the conventional stack cannot solve — that is when the math dominates.
Four: the rent is permanent, so it must be sized conservatively with fixed escalations and no market resets; the improvements revert at the end of a 99-year term; the leasehold must be drafted financeable or the building strands; and in small private-buyer markets some buyers discount leasehold deals at exit. Each is controlled at the drafting table except the last, which is a market-selection question.
The famous disasters were mid-century leases with fair-market rent resets and short remaining terms — a reset in a hot market could triple the rent overnight. Modern institutional leases use fixed escalations, 99-year terms, and full lender protections precisely because of those cases.
Only through sustained, uncured default — and a properly drafted lease gives your lender independent notice and cure rights plus a new-lease remedy, which is why lenders finance leaseholds at all. The lessor's economic interest is the rent, not the building.
When the deal has no capital problem: stabilized asset, cheap debt available, no gap to fill, or a near-term exit to buyers who dislike leaseholds. Permanent capital should solve a real problem. If yours does not have one, keep the fee — and we will tell you that.
Send the deal and the concern. If a ground lease is wrong for it, hearing that from us costs you one email — and if it is right, the math comes with the answer.
Email us the property