Ground Lease 2.0

More commercial real estate borrowers are embracing ground leases as a reliable financing option as higher interest rates and inflation rip through the market. It’s not the same, old ground lease approach, though. Lenders and lawyers in the space say ground leases now offer less risk and steadier returns. Meanwhile, New York’s mayor has called for sharp cuts to city agencies’ budgets. That’s impacting commercial real estate approvals and inspections in the Big Apple.

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— Tom Acitelli, Co-Deputy Editor

The Modern Ground Lease: White Knight in a Time of Market Volatility?

The commercial real estate industry is always looking for more efficient ways to access capital, and the hunt becomes especially important in times of market choppiness when there’s often a distinct dearth of capital providers. Like now. Which is why ground leases are being seen in an attractive new light. “If there’s a recession, liquidity will be even more constrained, which will mean real estate investors will have to be that much more efficient in order to navigate the market,” said Jay Sugarman, chairman and CEO of Safehold, a ground lease-focused real estate investment trust. “That only strengthens the value proposition for modern, well-structured ground leases.” Indeed, in an inflationary environment with rising interest rates and skittish financiers, investors are already having to find more creative ways to structure deals, as a CRE lending field that was packed only a year ago has now been reduced to tumbleweeds blowing in the fall breeze.

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Invesco, Bank OZK Lend $575M on San Diego Life Sciences Campus

After taking over a city workforce demoralized by the pandemic and struggling with staffing issues, New York Mayor Eric Adams slashed budgets at city agencies even further. The belt-tightening, along with a short-term hiring freeze, has raised red flags about the city’s housing, planning and building departments, which have struggled to close financing deals for developments, lease apartments and enforce building codes amid massive staff shortages. On Sept. 12, Adams’ budget director, Jacques Jiha, sent a letter to every city agency demanding that they cut their budgets by 3 percent during the current fiscal year and by 4.75 percent during each of the following years. Agencies are forbidden from hiring anyone until their savings reduction plans are approved by the mayor’s Office of Management and Budget (OMB).

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