MHC Ground Lease & Land Purchase
We work with Ground Lessors and Ground Lessees to purchase their interests even if there is still a remaining term on a ground lease.
Many MHP assets are subject to long-term ground leases. For ground lessors (land owners) and ground lessees (tenants), we understand that often those ground leases limit the flexibility and financial options, especially if partners of the respective groups have different goals.
As a company, we have bought MHP land subject to ground leases and have separately bought remaining terms of ground leases. At times, this has meant that we have miniscule returns and need to be patient for years. We are able to and willing to engage in these situations because we are long-term owners and are patient.
Because we have worked on so many of these situations, we are able to quickly analyze how we can provide you with maximum value and the smoothest transaction possible.
Ground Lessor – We often find that we are able to serve MHP Land owners subject to ground leases if they:
- Want to monetize their position now – MHP landowners want to capture value now rather than wait until the ground lease expires.
- Know their goals – We can help partners with different goals, whether that is to cash out, 1031 exchange, or stay in as a passive investor for the long-term.
- Want to strategically estate plan – We can create options for the land owner to help be strategic about estate planning for the land owner, partners, and their heirs.
- Recognize the conflict with the ground lessee – In the last 5-10 years of a ground lease there is an inherent conflict between the ground lessor and ground lessee. Knowing there is an expiring window of value that the ground lessee has, they are typically disincentivized to invest the necessary capital expenditures in a property.
Ground Lessee – We are able to best support the goals of the ground lessee if they:
- Want to eliminate management – The ground lessee is ready to move on from day-to-day management.
- Recognize the value of accelerated income – Buying the remaining term of a ground lease provides significant benefits to the ground lessee including immediate cashflow, elimination of capital expense liability, and elimination of management. Typically there is a present value discount associated with the buyout of the ground lease.
- Values post-tax revenue – If the remaining term of the ground lease is sold and it was originally a long-term ground lease, there may be an opportunity to pay capital gains tax rather than ordinary income; this is subject to the current tax regulations (please confer with your tax advisor)
- Values elimination of the liability and future Cap Ex expenses – In the last 5-10 years of a ground lease there is typically a growing need for capital expenditures as the property continues to age. The ground lessee is still responsible for these improvements throughout the term of the lease. Divesting of the remaining term of the lease eliminates this liability for the ground lessee.