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

2. 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.

3. 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

4. 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.

5. 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

6. 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

7. 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

8. 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.

9. 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

10. 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).