E
ven property owners who never intend to sell should consider making their ground lease attractive to potential buyers. Historically, ground leases were used by owners seeking a secure income stream without selling outright. However, these leases can also be appealing to owners who want to maximize sales prices by selling their land subject to a long-term ground lease.

    A market for leased fees has existed for years, with conservative investors drawn to the stable and predictable cash flow they offer. In recent years, this market has expanded, with major institutional players acquiring or creating billions of dollars in leased fee assets. If a ground lease meets these investors' requirements, it can command significantly higher prices than an outright sale.

    To make their ground lease attractive to potential buyers, owners should consider the following: ensuring that all risks are shifted to the tenant, providing for insurance proceeds to be used for property restoration, and requiring financial reports from the tenant. Additionally, owners should avoid retaining any residual responsibility or liability, as this can create uncertainty and dilute projected cash flow.

    Investors also want insight into the stability and reliability of cash flow from the ground lease. They may request financial reports from the tenant to assess its profitability and ability to pay rent. Furthermore, investors prefer lease language that requires the tenant to assume all liabilities, rather than allowing a new tenant or foreclosure purchaser to disclaim responsibility.

    Ground leases often give tenants flexibility to change the use of the building or demolish it, which can be a problem for leased fee investors. To maximize value and security, owners should focus on meeting the future requirements of institutional investors and lending communities. By doing so, they can create a more attractive ground lease that commands higher prices in the market.