The Importance of Ground Leases to Real Estate Bifurcation

The principal of New York company AIA since 2008, Dean Britton possesses experience in real estate and finance. In his role at AIA, Dean Britton helps companies enact bifurcation measures, when separate entities own a building and the land it occupies, on their leased buildings.

Although real estate bifurcation has existed for decades, it was not efficient and suffered from a bad reputation in the real estate industry. The old bifurcation model entailed one company performing both tasks and spending money to purchase land, called a ground lease, even if it lacked the expertise. Leases to develop a plot of land lasted for a century, and their value fluctuated wildly as market conditions changed.

Starting in 2017, the New York company Safehold revised the ground lease model to offer greater flexibility. One company, specializing in ground leases, leased the land to real estate-specific companies, which allowed both parties to spend capital more efficiently while the ground lease company earned more stable income. Used most often for office spaces, ground leases present promise in real estate sectors such as family homes, especially when combined with lease terms for small landowners.

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