The Building And the Land Can Be Two Different Deals
Most people think buying real estate means owning the building and the land under it.
That is not always true.
With a ground lease, one group owns the land while another owns the building above it. The building owner pays rent for the right to use that land for a very long time.
It may sound odd at first.
But this model can help a buyer put less cash into the land and more into the building itself. In a market where debt still costs more than it did a few years ago, that can make some deals easier to fund.
Now more money is moving into this part of the market.
Why Ground Leases Are Getting Attention
Land can be one of the biggest costs in a real estate deal.
If a builder can lease the land instead of buying it, the amount of money needed up front may fall.
That can help make an apartment or housing deal work.
The land owner gets something too: a long rent stream tied to a piece of land that may rise in value over time.
The two sides take different parts of the deal.
One owns the ground.
The other runs the building.
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What Many People Miss
A ground lease is not the same as a normal loan.
The land owner owns a real piece of the property. The building owner has the right to use it under the lease.
That means the lease terms matter a lot.
How long does the lease run? How fast does rent rise? What happens if the building is sold? What happens when the lease ends?
These details can change the value of both sides.
That is why ground leases need careful work. A good one can free up cash. A bad one can create a problem that lasts for decades.
Why Apartments Are a Big Part Of the Story
Safehold, one of the largest public ground-lease owners, has moved much of its focus toward housing.
In Q2, the firm closed seven new multifamily ground leases worth $150 million. Its ground-lease book now holds 172 assets, including 111 multifamily properties.
That matters because housing deals face the same problem across many cities: land costs too much.
A ground lease does not make land cheap.
But it changes how that land is paid for.
That can make it useful when builders need another way to get a project off the ground.
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What This Means For Real Estate
Ground leases may become more common if high land and debt costs stay in place.
They will not work for every deal. Some buyers want to own the land. Some lenders may also have strict rules.
But for the right project, splitting the land from the building can open another path to funding.
That makes this a small part of real estate worth watching.
It solves a very real problem: how to build when land takes up too much of the deal.
By the Numbers
Safehold closed $150 million of new ground leases in Q2, all tied to multifamily housing. Those deals had a 35% ground-lease-to-value ratio and a 7.4% economic yield. Its core ground-lease book reached 172 assets, with multifamily making up 65% of the asset count.
Bottom Line
Sometimes the best way to fund a building is not to buy the land under it.
Ground leases split those two jobs apart.
As land stays costly, that old idea may become much more useful.
