Typically the properties we work on fall into the following categories:
We have a strong interest in existing ground leases particularly old ones with cheap rents. These can be sold at low cap rates.
We are also very active in creating new ground leases, often as an alternative method of financing. There is a lot of distressed debt out there currently, and often conventional financing isn’t able to provide enough funds to pay off the existing lender. In many circumstances, combining the sale of the owner’s equity ground with a new leasehold first mortgage will provide enough additional funding to pay off the existing debt. See the attached for some additional information. (See: Ground Lease Brochure)
ZERO CASH FLOW
We have concluded a lot of transactions on properties leased to high credit tenants such as Wal-Mart, Home Depot, CVS, Walgreens, etc. where there was debt in place that used up all the cash flow for the property and the purchaser was able to buy the residual value for typically 10% to 15% of the amount of the existing debt. We are also interested in mature situations like this were the debt has been paid down over the years and often the current owner is facing “phantom income” (this is when the principal payments exceed the depreciation that the owner can take and, with no cash flow, has to pay tax on the taxable income resulting from the paydown of principal of the mortgage).
DISTRESSED REAL ESTATE
We are also very interested in deals where a property can be purchased at an attractive price due to vacancy, over leverage, sellers under financial pressure, etc.
We will also consider properties where there is some attractive element that makes it a good investment with attractive returns.