Q: Should I Consider a Land-Lease Building?
Bottom line, as with any ground lease scenario, you and your client are analyzingprice versus risk. The "risk" inherent in a ground lease transaction translates into leverage for the buyer and allows the buyer to purchase significantly more (upward of 30% in this case) home for the dollar than one would be able to purchase in a non-land lease scenario.
Worth noting, too, as with any financial endeavor, where there is risk, there may be opportunity. Consider that the ground lease is responsible for a significant discount and heightened buying power. What results value-wise if the risk is removed or deferred? If the corporation successfully negotiates a purchase of the lease or say a 99 year extension, what benefits will a shareholder realize? Yes, one will have to consider the increases in an underlying mortgage weighed against the reduction in maintenance (previously associated with the ground lease) and the gain of tax benefits associated with the mortgage, but perhaps most important and attractive to shareholders and future buyers alike, will be the predictability of events moving forward.