Long-Term Ground Leases, the Redevelopment Option and Contract Incentives

Ground leased property trades at a discount relative to the fee interest. We explore contractual alternatives that would be Pareto preferred by owners of the leased fee estate and the leasehold interest. The sharing of the value of the residual claim between the owner of the leased fee and the lease...

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Bibliographic Details
Published in:Real estate economics 2001, Vol.29 (3), p.451-484
Main Author: Dale-Johnson, David
Format: Article
Language:English
Subjects:
Building leases
Construction contracts
Construction costs
Contracts
Economic models
Economic theory
Escalator clauses
Extensions
Ground leases
Interpretation and construction
Landlords
Landowners
Long term
Present value
Real estate developers
Real estate development
Real estate industry
State court decisions
Studies
Citations: Items that cite this one
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Summary:Ground leased property trades at a discount relative to the fee interest. We explore contractual alternatives that would be Pareto preferred by owners of the leased fee estate and the leasehold interest. The sharing of the value of the residual claim between the owner of the leased fee and the leasehold and a lease extension clause triggered by redevelopment can enhance the value of the asset to both parties. The results suggest that employing such contractual terms in ground leases in the United States would lead to outcomes more consistent with the fee simple case. Escalation clauses also have a potential impact on the timing and intensity of redevelopment.
ISSN:1080-8620
1540-6229
DOI:10.1111/1080-8620.00018