Family Office Club Presentation September 24th 2019 Ground Leasing Bifurcation as Estate Planning

Part I - Ground Leasing Part II – Real Estate and Real Property: Sustainable Growth with Low Risk Part II – Real Estate and Real Property: Bifurcation & Securitization of Lease Payments Estate Planning with Real Estate Ownership.

GROUND LEASE : GROUND LEASE A ground lease creates a leased fee interest in the ground and leasehold interest in the building sitting on top of the ground. Landlord receives Ground Lease payments including escalations until lease expiration. GROUND LEASE

Why Ground Leasing ? Sustainable Low Risk Minimal Maintenance Built-In Inflation Hedge Reduces Risk of Loss Bankruptcy According to Bankruptcy Law, in the event of a Chapter 11 Bankruptcy of Tenant there is little to no impact on ground lease holder. A lease is a contract not a debt therefore no decrease in the rent may be ordered.

Ground Lease Benefits - Landlord Extremely low risk Seamless integration into today’s real estate finance markets if properly drafted Monetize the Land Stable long term income Eliminates risk of loss from inflation with Fair Market Value reset

Ground Lease Benefits – Tenant Lease payments are business expense and are tax deductible Leasehold financing friendly Seamless integration into today’s real estate finance markets

Ingredients of a Desirable Ground Lease Top 50 Central Business District Financeable Lease Corporate Guarantee Credit Tenant (Costco, United Health, BP, Home Depot etc.) Lease Term 31 – 99 Years Stated Rent Escalations and Fair Market Value Reset Land Value Exceeds 25% of Combined Property Value

1031 Exchange After Bifurcation Keep your Property without sacrificing your vision Option A: Sell Building, 1031 Exchange, Buy New Building - Lose your building and land altogether in exchange for new declared property. Option B: Bifurcate Land & Building, Implement Ground Lease, 1031 Exchange ONLY Building - You own the ground indefinitely.

Part II Bifurcation with Remainder Asset “Real Estate is a fixed asset; however, Real Property consists of a “Bundle of Rights” which include intangible assets such as air rights, ground rights, and stream of income (“rent”) “ Understanding Intangible Assets and Real Estate, IAAO (2016). Year 0 Inception Year 10 Building and Rent Deeded Stream of Income Fully Amortized Wasting Asset Bifurcation Must be performed at Closing Remainder Asset Deeded Asset

Estate Planning- Tax Avoidance Purchase / Sale of Remainder Asset Substantial Estate Tax benefits come from transferring the Remainder to down generations during the Term of Years avoiding full Valuation. Upon expiration of the Term of Years the heirs receive the full value of the Asset, i.e. the land, building and rights to income (Rent).