RKM Capital through a partnership will execute a “Sale-Leaseback” of the ground under commercial properties, in conjunction with the acquisition/disposition of a property by an owner/operator, who acquires the fee interest. We then lease the land back to the owner/operator on a newly created, 99-year ground lease at an initial lease rate typically 200 bps less than commercial mortgage rates.
While the ground lease economics terms are tailored to each asset, they are extremely active to the owner/operator’s equity returns. The purchase price of the ground is usually 30% of the total acquisition cost at a cap rate 150-200 bps less than the overall acquisition cap rate. For example: a partnership recently purchased and leased back land at a 4.05% cap rate on an asset that traded at a 5.7% cap rate. The ground lease structure improves the cash-on-cash return and increases the return on equity.
The lease contains a repurchase option at a favorable cap rate, typically after 75 years. The ground lease itself is Capital Markets compatible, having been accepted by several arms-length CMBS lenders and their respective counsel.
The acquisition of the fee interest has the following benefits: