Master Lease Option on Apt. Bldg

[Gary E. London]

Can someone explain the technique of using a master lease with option on an apartment complex and how it works. Does it work best with troubled properties?

[Colleen Sheridan]

Master Leases can be used for a variety of reasons, and most are not scams. For instance, an owner may not want continue to operate a building day to day but does not want to pay capital gains on sale if they have low basis, so they lease the entire building to someone who is more willing to operate the building and take on the management. Presumably, the master lease rate will be lower than the market rent so the "operator" can make a profit and justify investment in upgrades and leasing costs for the building. Sometimes a master lease is used when there is a ground lease on the land. This would allow someone other than the fee owner to build a building and "sublease" it to a tenant, a structure frequently used for Fortune 500 clients who have good bankable credit but do not want to build, own or operate their own building. A master lease is just another tool for managing control of real estate. You need to understand the motivation of the seller to determine if the reason is legitimate and make sure the numbers work. Finally, before you enter into a master lease, make sure you have a very good real estate attorney who has experince in structuring these transactions. Let me say that again - experience in doing these specific structures!. You do not...absolutely do NOT want a beginner at this!