What is a ground lease deal? when you buy a ground lease how it affects the cap rate compare to regular deal?

In Buying Property - Asked by Shalom G. - Dec 29, 2008
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Answer(s)

Sue W.
Broker/Agent
Riverside, CA

The cap rate is still arrived at by determining the NOI (net operating income) of the property, just like any other property. Most ground leases are NNN, which means that the tenant pays all of the expenses associated with the property, leaving the lease payment that is paid to the landlord as the NOI.

Dec 30, 2008
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Chris S.
Broker/Agent
Coeur D'alene, ID

You are talking about two different types of cap rates. One applies to the income stream generated by the payments made on the ground lease. The other applies to the income from the improvements (building).
I have worked on many a ground lease transaction both from the side of the ground lessor and the ground leasee. The transaction can be very complicated and must consider many factors like the lease rates, comparison to market lease rates, credit worthiness of tenant(s), market value of the improvements (if any), reversion on the lease, term of the lease, etc. etc.

Jan 5, 2009
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