Ground lease, nnn deals! What am I missing here?

[Sundeep Singh]

So my family has been involved in commercial real estate for a while. More specifically, we've bought and converted two hotels that we converted to other brands which we went on to sell. We've also built one from the ground up that we've been operating for many years now. To diversify our portfolio, we've built two other businesses that we also run ourselves. Even though everything is working smoothly, it's an operational headache. 

Because of this, I've been doing some research on ground leases and nnn deals but everything I've been seeing is from the investor side. What is like from the developer side? I've found a couple properties that I think would be good for something like a wawa, walgreens, cvs, etc. How do I go about creating the ground lease nnn deal and selling it? To make things simpler, I want to only be involved with the site acquisition, I want find a credit worthy tenant that will build their own structure, and then I want to sell the whole package.

Why don't more people with this kind of capital look into doing this? 

My supplementary question is, why do these credit worthy tenants agree to a 20-25 year ground lease where they have to build the structure and then eventually give it up to the owner? This seems very costly for the tenant.

[David Miller]

Saving on the land acquisition costs (especially in very expensive markets) and getting the benefit of deducting lease payments are two reasons a ground lease can be attractive to a tenant. That said, the cost of a ground leasing property can be higher in the long term, tenants can have less flexibility over the development, use, and operation of the property due to lease restrictions and, to the extent the leasehold interest is used as a financing tool, it’s value and marketability diminishes over time as the lease term approaches its end. In some cases, a landlord may insist on a ground lease (for reasons like avoiding a taxable gain on sale or maintaining control of the land and the use of the property).