What are typical ground lease rental rates? Like if I had 1 acre suitable for a 5,000 SF development?
15 year term
Atlanta, GA

The tenant builds the building and the LL takes it after the lease expires correct?
[{"id": "igm9z9b", "text": "Ground Lease economics, which are another structure of receiving rents, always boil down to one simple factor: how much profit can a user make on your parcel? When talking about commercial property, the tenant's profit factor is always the #1 driver behind desirability / rental rates. Too many landlords forget this.\n\nAs a general rule of thumb, Ground Lease base rents will reflect about 5.0% - 7.5% of tenant's projected sales at the location. The composition of those sales (e.g. operating margins) will dictate whether your tenant will pay more or less.\n\nFor instance, let's say you have two users who both expect to generate $2M in annual sales at the site. One user is a burger restaurant, and the other user is Starbucks. In most scenarios, Starbucks will be willing to pay more rent because their sales generate higher profit margins. Starbucks may likely pay $150k/year whereas the burger tenant may cap out at $100k/year.\n\nIf you want to be diligent about maximizing the value of your property, then you need to properly identify which operator(s) will make the maximum profit at your site.\n\nIs the property located at a high traffic intersection right before a freeway entrance? Then maybe you reach out to gas station operators.\n\nIs the property located in the Class A retail area of your city, at a signalized corner, with many anchors in the immediate vicinity? Then maybe you reach out to Chick-Fil-A / Raising Canes / In-N-Out.\n\nIs the property located across a major college / hospital? Then maybe you reach out to Starbucks.\n\nAs an FYI - you'll most often be better off building two 2,500 SF standalone buildings vs. one 5,000 SF building (unless it's a major player like Chick Fil A).\n\nYou should expect a 20-year base rent + 4-6 five-year extension options. You'll be responsible for delivering the compacted pad with utilities stubbed, and on/off-site work completed.", "replies": [{"id": "ignxtqe", "text": "This is great info! Is there someone you can hire to help determine this values? A local broker / consulat /attorney? Who would be best to find the right numbers?\n\nThanks", "replies": [], "depth": 2}, {"id": "igqkzzg", "text": "Wow thanks so much. But I have to decide the rent schedule before we know how much money the tenant will make. Idk if they (oil change place) will tell me their projected revenue. \nAre you saying I should pursue a percentage rent deal? Where they have to report financials. \n\nIs there another way rent could be calculated such as $2/sf/yr on the land/parcel Or $/sf on the building?\n\nThey offered a 15 year lease and 15 yr Option.", "replies": [{"id": "igqn5hu", "text": "Oil change place could potentially leave you with contaminated property that needs to get torn down after the 15 or 30 years anyway depending on present/future environmental laws.  \n\nWith electric vehicles taking over, the company may be bankrupt in 30 years and leave a toxic mess for you to (expensively) clean up.", "replies": [{"id": "ihnty63", "text": "&gt; ars anyway depending on present/future environmental laws.\n&gt; \n&gt; With electric vehicles taking over, the company may be bankrupt in 30 years and leave \n\nDo oil change places really pose an environmental risks?  Isn't that more dry-cleaners?  \n\nYes I am worried about the future bankruptcy but we'll probably sell the place by then.", "replies": [{"id": "ihobb5x", "text": "Yes they absolutely do require a lot of extra vetting by a potential buyer anywhere in the US.", "replies": [{"id": "ihqs36q", "text": "&gt;equire a lot of extra vetting by a potenti\n\nThanks.  You still think it's worth doing I assume?  It's not so much a risk that I should say no.  The brokers says their building specifically designed to avoid any environmental concern and they don't have any under ground storage. Completely self contained.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}, {"id": "iomccu9", "text": "unless they are dealing with coolant, lubricants pose no environmental risk", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "ihqru3i", "text": "&gt;es stubbed, and on/off-site work co\n\nThanks for you input.  I have some more details on the deal after receiving their LOI.  It's a 15 year lease with a 15 year option.  They will pay for the building, maintain it, and remove the building when the lease expires.  They're just asking us to contribute 50% of the costs to extend utilities to their building.  Is that fair?\n\nFeasibility Period:  2 months;  Permit Contingency:  6 months;  Construction Period:  4 months.  So overall 10 months from lease execution until lease/rent commencement.  Thoughts? \n\nIs a 3% commission a bit high for a 15 year term?  He also wants 3% on the Option if they take it.  Isn't it weird to agree to pay commission on the Option this far in advance?\n\nSecurity deposit:  $3,000.\n\nThere is a comp nearby for 14 acres at $1.65/sf/yr but off the beaten path with no visibility.  Ours is only 1 acre but it's on a major road with tons of other stores around.  I was thinking $2/sf/yr would be fair.  \n\nIs a modified gross lease standard for a ground lease?  They will pay for their own utilities and trash but no management fees or property taxes.", "replies": [{"id": "ihsgb76", "text": "I'll answer the best I can, but it's a bit hard since I do not know the economics they are offering you. A lot of my answers below also assume the tenant is offering you good rent, and has excellent credit. With that said - you can always message me directly and give me more details.\n\nHave they given you a direct rent figure? Tell me more about the tenant's operations (what do they sell?). Are they national or local?\n\nYou should engage a commercial real estate transaction attorney if you (and the tenant) are serious about this deal. The devil is always in the details, but I will share some guiding thoughts.\n\nWith respect to contributing 50% towards the utility costs - that's a fair request, as long as the rent they are paying is good. You might want to cap your costs though (e.g. $50,000 cap, to be paid upon tenant's opening for business and receipt of first month's rent). \n\nA 15 year base term is pretty normal for a ground lease. A 15-year extension option is less common, but I would not penalize them for it. \n\nWith respect to the building improvements: you should negotiate that the building improvements revert to Landlord's ownership upon lease termination, unless Landlord elects to have tenant remove the building at Tenant's sole expense.\n\nThe feasibility/permit/construction periods are fair. With respect to rent commencement, there should be a section in the LOI titled \"Rent Commencement Date\". If that is not in the LOI, you should add it in with language like \"Rent Commencement to be 300 days from lease execution\". You do not want to tie the rent commencement to permits because a tenant can purposely delay pulling permits.\n\n3% commission is fine if the tenant is of substantial credit. You can negotiate paying 3% on the first 10 years of lease, and 1.5% for years 11-15. You should pay the additional 3% commission if the tenant exercises their renewal option in 15 years. Some landlords refuse to pay commissions for options, and some are open to it. I typically pay 1%, but only on deals in which I am receive top market rents from a Fortune 500 tenant. \n\nSecurity Deposit of $3,000 is low. It should be, at a minimum, equal to your last month's rent. \n\nWith respect to the lease structure: most leases are either modified gross or NNN. Modified gross is better if you plan on holding the property for a long time (20+ years), and you can bake in CPI increases. NNN is better if you plan on flipping the property ASAP for a quick profit. \n\nI would say, for most people, NNN is better. It protects you better with respect to cost recoveries. \n\nRegardless of the lease structure, you should have language that the tenant self-maintains the entire property, including trash, landscaping, maintenance &amp; repairs, etc.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "igoyd94", "text": "FYI...No one is doing a 15 year term on a ground lease.  Yes, you are correct that you would own the building after the lease is expired hence the reason no one will do a 15 year term.", "replies": [{"id": "ihqsjvs", "text": "&gt; is expired hence the reason no one will do a 1\n\nSo now that I have the LOI I have more details.  They want to own and maintain the building and remove it after lease expiration.  It would be a small building.  Under 1,000 SF.  \nSo perhaps a bit unconventional ground lease.  We have about 1 acre of extra parking spaces to the side of our shopping center that nobody ever uses and they want to put their little oil change building on it.", "replies": [], "depth": 2}], "depth": 1}, {"id": "igrph1m", "text": "Ground leases are dependent on comps.  I recently signed a ground lease to a development company for $55.00/sqft for 50 years.  Perform an appraisal.\n\nAlso, there is no such thing has a 15 year ground lease.  Ground lease range from 50 years to 100 years.  A 15 year lease is just a regular lease.  Average commercial lease is a 10  (ten) year initial term with two (2) five (5) year options.  That's for qualified Tenants only.  Otherwise, 3/3/3 or 5/5/5 are common.", "replies": [], "depth": 1}]