Ground Lease

Ground leases are leases established on raw land or on a pad site.  Ground leases are usually established over a relatively long period of time since the party or parties who invest in the improvements want to take advantage of the improvements over the expected building life.  Thus, it is not unusual to find ground leases established for 20 years or more, and some ground leases have a 99 year term. 

The benefit of a ground lease to a developer is the fact that they don't have to pay for the land.  Thus project costs are significantly reduced.  The downside to the ground lease arrangement is that as the lease shortens it becomes more difficult to sell a property in the open market.  While many buyers may consider a building with a 30 year remaining ground lease term, few would consider it with only 10 years remaining.

Rental rates are negotiated between an owner and a potential tenant that reflect property features like; location, site size, zoning / use, visibility, accessibility, orientation and infrastructure improvements.  The terms of the lease also directly affect the lease rate.  

Establishing a ground lease may become difficult when issues like mortgage security (who is in first position in the event of a default) and when the long-term lease rate are negotiated.  

Ground leases are usually established based on the value of the land asset on the day the lease is established.  Adjustments for changes in land value are not considered pertinent, since a change in the rental rate forced by a change in land value would be detrimental to the tenant.  Thus, the lease rate is usually adjusted upward only based on the Consumer Price Index (CPI) or similarly well established indexes.

Contact us with your questions or concerns regarding Las Vegas ground leases or regarding your specific appraisal assignment in Nevada at 1-702-568-6699.  We can also be e-mailed at grigdon@cox.net.  

Commercial Real Estate Appraisals in the Las Vegas & Henderson, Nevada Area.