How Do You Evaluate A Ground Lease Opportunity?

[Quy Huynh]

I have a piece of land that's zoned retail at a very busy intersection. Rates in the area are about $20 NNN annually. How do I go about figuring out how much I can get for a ground lease? The lot is a little over an acre so I believe the large footprint tenant opportunity is there. Thanks!

[Joel Owens]

You get the most for a corner fronting 2 streets with high traffic counts.

1 acre is tough for a pharmacy as usually it is 1.5 to 2.5 acres. If they loved the site they might could figure out something or buy a parcel next to it to make it work.

Pharmacy generally pays the most followed by banks, gas stations, food, Auto Stores  etc. 

You want to set annual rent at no more than 10% of expected sales. The expected selling cap changes in the market from the time they get built and they occupy. If they do not renew the primary lease term then generally you get the building by default.

Most important is how the lease is constructed so if you want to sell the income stream down the road it is positioned to be  looked on favorably by lenders and the buyers. Once the primary term lease is executed good luck in getting them to change anything after the fact. I have seen some developers use some bad leases before.