CRE glossary
Ground lease
A ground lease is a long-term lease, typically 50–99 years, where the tenant leases only the land and builds, owns, and operates the building. The tenant pays ground rent to the landowner; everything above ground is the tenant's asset. Ground leases dominate institutional CRE in cities where landowners prefer to retain the land long-term (NYC, parts of Boston, university-affiliated parcels).
Ground leases solve a specific problem: landowners who want long-term yield without selling the land outright. Many of NYC's iconic buildings sit on ground leases, the building is owned by one party, the dirt by another. Ground rent is structured as escalating payments (often CPI-indexed with caps) over the term, with periodic 'reset' dates where rent gets re-marked to current land value.
The reset is the most important clause and the most contested. Common structures: (1) Periodic resets every 25–33 years to the current fair-market value of the land × a yield rate (often 6–8%). (2) CPI-indexed resets. (3) Defined-step rents. The reset can produce dramatic ground-rent jumps; a building that paid $500k/yr in 1990 could be paying $5M/yr after a 30-year reset to current land value.
Ground-lease tenants face a critical end-of-term problem: at lease expiration, the building reverts to the landowner unless the tenant has negotiated an extension or purchase option. Most modern ground leases include extension options or purchase rights at predefined milestones. Without them, a building owner can lose a multi-hundred-million-dollar asset on day 99.
Example
- Ground lease term
- 99 years
- Initial ground rent
- $2M/year (Year 1)
- Escalation
- CPI-indexed with 5% cap, 3% floor
- Reset every 30 years
- To 7% of then-current land FMV
- Year 30 land FMV
- $80M $5.6M/year ground rent
Broker perspective
Ground leases matter to tenants because they affect the building owner's economics. A landlord with 30 years left on a ground lease behaves very differently from one with 80 years, they have less runway to amortize tenant improvements, less interest in 10-year leases, and more sensitivity to current cash flow. Always check the ground lease status of any building over 30 years old in NYC.
Frequently asked
People also ask
Who owns the building under a ground lease?
The tenant, for the term. At expiration, ownership reverts to the landowner unless extension or purchase rights have been exercised.
How long are ground lease terms?
50–99 years is typical. 99-year is the standard for NYC institutional ground leases.
What's a 'reset' in a ground lease?
Periodic re-marking of ground rent to current land FMV × a yield rate. Resets every 25–33 years are common and can produce dramatic rent increases.
Are ground leases common?
In NYC: extremely. In most US markets: rare. Boston, parts of LA, and universities have meaningful ground-lease inventory; tertiary markets rarely do.
Related terms
Base rent
The headline rent before pass-through expenses, usually quoted in $/SF/year and the starting point for every comp.
Capitalization rate (cap rate)
Annual NOI divided by purchase price, how investors quote yield on a CRE asset.
Net operating income (NOI)
Gross income minus operating expenses, before debt service, the income line cap rates and valuations depend on.
Renewal option
Tenant's contractual right to extend the lease at predefined terms, usually exercised 9–12 months before expiration.
See ground lease extracted from a real lease.
Drop a 60-page lease, get a 38-field abstract in 90 seconds, every value cited back to the source page.