A family office that has just sold land, or a business, often wants the same thing next: a large, quiet, long-dated position with nothing to manage. A ground lease can be that. But “ground lease investment” means three different things to three different people, and only one of them is the asset most buyers think they are buying.
The leased fee. You own the land. Someone else owns the building under a long lease and pays you ground rent. This is what this page is about.
The leasehold. You own the building and the right to occupy the land, and you pay the ground rent. Higher income, depreciable, but you carry the operating risk and the lease clock.
Land banking. You own raw land with no tenant, waiting for a buyer or a zoning change. No rent, no collateral, all appreciation risk.
Before any conversation about price, agree which of the three you mean. A buyer who wants the first and is shown the third wastes everyone’s month.
On an unsubordinated lease, the land never secures the building’s loan. The leasehold lender lends against the building and the lease, and sits behind your rent. If the tenant defaults and nobody cures, the lease can end and the building is yours. A tenant with a large building and a lender with a large loan both have every reason to keep the rent current.
That is why coverage matters more than the tenant’s credit rating. Ask what the building earns at stabilized NOI against the ground rent. At three to four times, the rent is a small slice off the top that the building can pay through a bad year. At one and a half times, the rent is a large slice and the building has no room.
| Question | What good looks like | What to worry about |
|---|---|---|
| Remaining term | Long enough that the building stays financeable for decades | A short tail. Lenders stop lending, the tenant stops investing, and the building ages toward you |
| Escalators | Fixed annual bumps, with any CPI adjustment capped | Fair-market-value resets. They make the leasehold hard to finance and invite litigation |
| Subordination | Unsubordinated. The land never secures the tenant’s loan | A subordinated lease. A foreclosure on the building loan can reach the land |
| Coverage | Three to four times at stabilized NOI | Coverage measured on projections, or on a going-concern value that includes a business |
| Leasehold lender rights | Notice, cure periods, a new-lease right. Standard and expected | None at all. It means the building is unfinanceable, and your rent depends on cash alone |
| Reversion | Clear language on what returns to you at expiry and in what condition | Silence, or a tenant right to remove improvements |
The escalator row deserves its own read. Fixed bumps are predictable and financeable. CPI tracks inflation but can spike. FMV resets look generous to the landowner and are the clause most likely to break the deal underneath you. We wrote the comparison out in CPI vs FMV reset.
The leasehold lender row is counterintuitive. A buyer of the land sometimes wants a lease with no lender protections, on the theory that fewer rights for the lender means more for the owner. It works the other way. Lender protections are what make the building financeable, and a financeable building is what pays the rent. The public agency standard is laid out in what leasehold lenders require.
A stabilized purchase buys land under a building that is built, leased and producing NOI. Coverage is a measured number. The risk is the term, the escalators and the market.
A forward commitment buys land under a project that is not yet built. Rent often starts at closing and is carried in the construction budget through lease-up. Coverage is a projection until the building is open. Until then, your collateral is dirt and a construction site.
On a forward deal, ask for three numbers and do not accept one: the as-is land value, the leased-fee value once the building is complete, and the purchase price. When the price sits well above the as-is land value, part of what you are paying for is development capital, recovered through rent. That can be fine. It should be priced as what it is, and you should know the collateral is worth less than the check until the building exists.
Direct and whole. You take title to the land. You read every document. You decide every consent, every estoppel and every amendment. Nobody charges a fee for holding it. At $5–20 million per position, most family offices can buy this way, and most should.
A fund. You own an interest in a pool. You get diversification and a manager. You also get a management fee, often a promote, and a manager who decides what happens when a tenant asks for something.
A fractional vehicle. Tenancy-in-common interests and Delaware statutory trusts slice one property among many investors, usually for exchange buyers with smaller proceeds. They come with sponsor loads and limited control. They exist for a reason. They are a different product, and we do not offer them on this site.
The question to ask any vehicle is the same one you ask the lease: what comes off the top, and who decides when something goes wrong. Exchange buyers should also read buying a ground lease with 1031 proceeds.
Ground rent is fixed, non-amortizing and priced on the land. The price of a leased fee depends on the term, the escalators, the coverage and the building above it, which is why we quote it on a specific property and in writing rather than as a market number. Anyone quoting you a single market rate for ground leases is quoting a number that will not survive a specific lease.
The land, on a 99-year lease: nothing to manage, senior to the building’s lender, low yield because the buyer is buying the right to not pay the tax. The building above it: higher yield, paid monthly, depreciable. Both are replacement property. Both close on a date we control, which is the part that matters on day 140.
1031 SolutionsWorking with an intermediary? The standby sheet for line 3 of the identification form.
The leased fee: title to the land, subject to a long lease, plus the right to the ground rent and to the building at the end of the term. The tenant owns and runs the building.
The leasehold lender gets notice and a chance to cure, because its loan is at stake. If nobody cures, the lease can be terminated and the building comes to the landowner. On an unsubordinated lease, the land was never pledged to the tenant's loan.
Coverage. A strong building standing behind a small rent protects the rent through tenant changes. We underwrite three to four times stabilized NOI over ground rent at origination.
At five to twenty million per position, buying direct and whole is usually available and gives full control with no manager fees. A fund adds diversification at the cost of fees and control. Fractional vehicles are a separate product we do not offer here.
We do not quote a market number. Rent is fixed, non-amortizing and priced on the land, and we quote it on a specific property in writing, because term, escalators and coverage move the price.
Check size, hold period, whether you need exchange timing, and whether you will take a forward commitment or only stabilized land. We will tell you what fits and what it looks like on paper.