INVESTMENT / DEVELOPMENT / FUNDING / ASSET MANAGEMENT
Commercial Ground Lease Market
Ground Lease Investments in the United Kingdom were a product of the so called “Landed Estates”. Originally called ‘building leases’, owners of land granted long term leases of typically 125 years to developers allowing them to construct buildings in return for a share of the income the developer received from the building.
Traditionally, the main owners of ground leases have been bodies such as the Crown Estate, the Church Commissioners, and the City of London Livery Companies. Much of areas such as Regent Street in London (the Crown) and many City of London office buildings (Livery Companies) are subject to ground leases. The post war period also saw the increased use of ground leases by local authorities and other public bodies, as a way of rebuilding their cities. In Scotland the former Development Corporations utilised ground leases to fund the expansion of the former New Towns. In Aberdeen, the former Corporation of the City of Aberdeen and the former Grampian Regional Council released parcels of land to facilitate the first generation of North Sea oil development, whilst retaining the Heritable interest.
The recent property cycle witnessed an increased appreciation of the core strengths of ground lease investments by institutional investors, debt funded borrowers and private investors.
The asset’s liability matching attributes are well suited for pension funds and long term investors.
The impact of long term leases, both in respect of improving weighted average unexpired terms within a portfolio and the significant reversion, provides a counter to the valuation extremes experienced by traditional forms of property investments, particularly within a in volatile market.