As more residential or commercial property owners in need of liquidity usage ground rents to unlock capital, investor could reap the benefits.

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  Numerous openly traded property trusts (REITs) have actually faced challenges in the past year, with returns mainly trailing stock exchange indexes. But REITs that are concentrated on ground leases - owning the land without owning the structures that rest on it - have actually been an exception.
  
  Splitting the ownership of commercial land from the buildings that sit on it isn't an originality. In some methods, it's the exact same monetary structure that middle ages royalty used with its topics. But the democratization of ground leases and their growing popularity is reflective of other kinds of securitization throughout the economy - creating narrower and more focused return characteristics to match the needs of various classes of investors.
  
  And with commercial workplace real estate, in specific, in a popular state of post-lockdown upheaval, the capability to create a de-risked property asset has been warmly welcomed by investors.
  
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  At present, Safehold (SAFE) is the sole publicly traded ground lease REIT pure play. It will likely be one of a number of on the marketplace in the coming years, prompting other more traditional REITs to diversify their holdings with land leases.
  
  We've currently seen this with a mega-deal including Real estate Income and Wynn Resorts. In a deal valued at $1.7 billion, Wynn Resorts sealed a sale/leaseback plan with Real estate Income, a traditional REIT, for its Encore Boston Harbor development, a hotel, gambling establishment and theater project six miles south of Boston.
  
  Unlocking capital when in need of liquidity
  
  Residential or commercial property owners are using ground leases to open capital in locations where liquidity is lacking. With regional banking tightening up loaning - even with the specter of lower rates of interest - we are now seeing land lease questions soar. In my own land lease specialty practice, we are fielding more queries from owners and designers in all genuine estate sectors.
  
  One needs to just look at numbers touted by Safehold. Tim Doherty, Safehold's head of investments, stated in a news release that the business has actually broadened land lease deals from 12 in 2017 to 130 in 2022, with the value of the portfolio at more than $6 billion. He attributed the growth to a new level of elegance in the land lease market, embracing strategies such as predictability of lease payments, a move that results in more efficient pricing. Over the last 3 months of 2023, Safehold stock was up almost 40%.
  
  Growing appeal of ground leases has not gone unnoticed. Three years ago, Dallas-based Montgomery Street Partners began a $1 billion REIT targeted on investments in the nation's top 50 markets. High interest from institutional investors triggered Montgomery Street to broaden the pool to $1.5 billion in 2022.
  
  Murray McCabe, a managing partner of Montgomery Street Partners, stated in a news release, "The strong need we have actually seen for GLR's (ground lease REIT) follow-on equity offering verifies our method and confirms that ground leases have actually evolved to become an acceptable and traditional funding tool."
  
  Clearly, ground lease investment funds are among the emerging trends in genuine estate. Ares Management and genuine estate private equity firm The Regis Group formed Haven Capital in 2020 to catch growing land lease need to, in their words, offer "a more efficient form of financing" that helps unlock property value.
  
  These recent developments, along with overall financing trends within the genuine estate industry, establish a pattern that's tough to ignore: Land lease activity, which has grown to a more than $18 billion market in 2022, will only see more deals revealed over the next ten years. By one estimate, the market could be close to $2.5 trillion in the United States alone, providing a significant runway for expansion.
  
  How does a land lease work?
  
  Long a staple of household offices looking for a stable earnings and foreseeable stream from long-held vacant parcels in preferable places, the land lease has become widely embraced because the car presents a win-win scenario for both the building owner and the landowner.
  
  How does a land lease run? Typically covering a regard to 50 to 99 years with renewal choices, a land lease REIT or sponsor gets the land from the structure owner. This arrangement makes it possible for the designer to launch important capital, directing it toward areas with higher return capacity. Simultaneously, the building owner keeps complete control of the property while divesting the land underneath it, which, though helpful in the development process, provides little go back to the general project. The lease is customized to fit the project.
  
  The Boston Harbor Development serves as an illustration of the enduring usage of land leases in the hospitality industry. Additionally, this method has found appeal in retail, fitness and health centers and fast-food outlets. Now, different markets are acknowledging the value of this concept. Ground lease payments include established annual lease boosts.
  
  " Proof of principle continues to spread," Safehold's Doherty said.
  realtor.com
  As the benefits to a task's capital stack become easily apparent, ground leases will gain larger acceptance and be routinely utilized as an essential aspect in the realty industry. Predictions suggest that ground leases will become mainstream within the next five to ten years, offering a spectrum of investment opportunities for astute players.
  
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  Real Estate Investing: How You Can Profit Now.
  This post was composed by and provides the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
  
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  Jim Small is the Founder/CEO of Sante Real Estate Investments, an impact-based realty company. For over 10 years, he has partnered with ultra-high-net-worth individuals and family offices to obtain and manage countless multifamily properties across the U.S. and Europe, creating constant returns and favorable social effect.
  
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