Are Leasehold Interests Exchangeable?

A Real Estate investor who is contemplating an exchange of a fee-simple property into a leasehold (ground lease) property needs to be careful that the new ( or remaining ) term of the ground lease, together with available options to extend the lease, totals at least 30 years. Continue reading

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Valuation of NNN Ground Leased Properties

Single tenant, net-leased properties (STNLs) have become very popular with many commercial real estate investors. These are properties frequently featuring both well-established retail and specialty tenants such as Walgreens, Rite Aid, Home Depot, Dollar General, Sonic Restaurants and banks:  tenants whose branded improvements are located on land under a long-term ground lease, usually 20-50 years.

These properties are usually marketed with heavy emphasis on the financial strength of the tenant, and on  the fact  that the NNN lease relieves the owner of the improvement of almost all management responsibilities.  As such, they are presented as near-ideal, low-risk  investments, especially for senior investors who have grown weary of  management chore.

 In reality, the majority of these leases are invariably very overpriced and fail to provide adequate rent increases over the term of the lease thereby depriving the owner of the ability to keep pace with inflation to preserve the purchasing power of the rent dollar. The problem of overpricing is caused by uniformed  or misinformed brokers who capitalize the net operating income to establish an asking price.

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Pensions at risk by record unfunded liabilities

The United States is beset with many severe financial problems, not the least of which are the looming collapse of the Social Security System, an expanding public debt of $20+ Trillion and the impending collapse of Medicaid and the Affordable Care Act (Obamacare). But perhaps the greater threat to the financial health of the individual American is the enormous unfunded liabilities that continue to be accrued not only by the federal government but also by states, cities and municipalities of varying sizes which are contractually committed to funding the retiree’s pension payments.

In 2013 Moody’s estimated that the shortage of  funds available for federal pensions, civilian, and military employee benefits amounted to $3.5 Trillion. The Director of the Congressional Budget Office, Keith Hall, recently estimated that the state public pension plans are now unfunded by $4.7 Trillion. Total unfunded liabilities now exceed $9.2 Trillion.

The specific causes of municipal insolvencies are myriad, Continue reading

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