What Is Driving Modern Ground Lease Salience in New York?

 A New York City financial leader specializing in real estate finance and underwriting, Dean Britton has served as the managing principal of AIA Terra Partners since 2013. Dean Britton is responsible for capital structuring for real estate development deals and recapitalization initiatives and identifying and structuring new ground lease opportunities.

A ground lease is a contract in which a tenant (holder of leasehold land) pays a rental fee to a landowner at predetermined intervals in exchange for permission to use the land for real estate development and commercial activity. This will continue for decades until the contract expires and the tenant moves away and finds another property. In New York, modern ground lease space is expanding at an impressive pace dating back to 2019. Modern ground lease space is comprised of private and publicly traded firms that buy and lease lands to other entities.

Pioneered by the publicly-traded commercial real estate firm and ground lease operator Safehold, modern ground lease in New York pushes the envelope of commercial real estate investment options and income opportunities for investors. Some subsequent entrants, like Haven Capital, have cemented positive reputations in the private ground lease space.

Ground lease offers an opportunity for investors to build sustainable nest eggs amid the COVID-19 pandemic and unexpected economic turbulence. This merit is attributed to increased income predictability.

According to experts, older ground lease contracts lack flexibility, and the value of the properties is improperly sized. One instance of a property that is improperly sized right from the start is when the value of land triples the value of a building erected on it. Flaws in property sizing subject real estate partners to erratic cash flow streams as a consequence of fair market value rent resets, and this risk is the norm with traditional ground leases. Modern ground lease contracts have strategically extricated investors from these risks, revitalizing the ground lease space and making it less risky for investors.