What is a land lease?
The land lease is more commonly used than you might think. It leverages the value of your land – typically the least revenue-generating segment of your assets – by separating ownership from that of the building and other improvements built on the land. Widely used by well-known national chains, such as Starbucks and McDonald’s, this arrangement has traditionally provided access to conveniently located lots that would not be available for purchase.
In a land lease, the land is bought and re-let to the owner of the building for a period generally of 49 to 99 years. Historically, these leases were inflexible and made it difficult for the building owner to finance or sell their property, and could also result in costly adjustments to the terms of the lease.
A modern land lease does the exact opposite, providing landlords with a highly efficient structure for unleashing a property’s full potential and increasing returns in a manner similar to traditional financing. Using your land as leverage, Haven Capital’s platform also offers a crucial distinction: a flexible buyout option that allows owners to buy back their land costs at a time that makes sense for their business. This buyout option fundamentally changes the way the lease is taken out, compared to historic land leases and other products that don’t offer this flexibility.
What are the advantages of Haven land leases?
Land leases offer many advantages to developers and owners when looking to capitalize their investments. Specifically, a ground lease can provide the cash needed to recapitalize, reposition or renovate a property, as well as to finance other acquisitions and developments. The reduction in equity requirements provided by a ground lease translates into higher cash yields, an increase in the overall initial rate of return (IRR) and freed up capital to be deployed for other investments.
A ground lease also provides greater long-term clarity by significantly reducing exposure to the credit cycle; long-term low interest rate freeze; and eliminate the risk of funding maturity on much of the capital stack.
The cost savings are also substantial. Typically, homeowners refinance their property every five to ten years and each time pay transfer fees, mortgage taxes, legal fees, and other costs associated with doing business. These payments, typically associated with 30-40% of the capital, are waived, reducing capital requirements and improving returns.
From a tax standpoint, land leases also offer significant advantages to building owners. Although landlords remain responsible for property taxes, with a land lease they can deduct land rent payments from net operating income, thereby reducing the overall tax burden.
Overall, modern land leases are an innovative financing option designed to enable businesses to meet today’s diverse commercial real estate needs. Made correctly and through a modern, user-friendly platform like Haven, they are flexible enough to scale with your assets and unleash the full capital potential of all of your assets to drive your real estate strategy forward.