Ground lease rate for a piece of commercial real estate property
Can anyone explain how I should go about setting a rate for a ground lease on a piece of undeveloped property that is just under an acre in size? 

Tenant would be a global corporation. Property sits in a well trafficked area on two major arteries in the city. 

Going to sit with these people in the next few days and I want to have some basic ideas of what to say when we get to the topic of the ground lease. TIA.
[{"id": "i64zelj", "text": "NNN lease with tenant paying all taxes insurance and maintenance.\n\n5-8% of the fair market value of the property with 2-3% escalations annually.  Let them control it for max 40-60yrs (including options).  You can make the rent for years 40+ Fair Market Value but not less than prior terms rent.  \n\nThis assumes they don't want to obligate LL to do any word or make any improvements / contributions.\n\nUse your attorney to write up the agreement or make comments to theirs.", "replies": [{"id": "i6544ql", "text": "5-8% for the entire year or per month? \n\nAlso would this be based off the land as it is now (undeveloped) or after improvements have been constructed?", "replies": [{"id": "i656ke3", "text": "5-8% would be the annual return.  So if the land is worth $1,000,000 then it would be 50-80k/yr NNN.\n\nIt's on the value of what you are leasing to them, excluding the improvements they will make.\n\nSo if it's worth 1M and you need to put in 50k to complete Landlord's work and 10k for your attorney then your 5-8% return is based on 1,060,000.  Include all of your costs, commissions, fees, etc. in your \"cost\" side of the equation.  \n\nIf you are somewhere where land is very inexpensive &lt;$10/ft for retail lots then you could go up to 10-12% return.  If it's super expensive land like Los Angeles @ &gt;$100/ft then you would end up closer to 5%.\n\nAssuming it's a retail lot I would imagine the price would never be less than $50-65k/yr NNN for a lot so maybe use that as a floor.", "replies": [], "depth": 3}], "depth": 2}, {"id": "i65idj8", "text": "Great advice....but...no bumps at 5 year increments?\n\n*(I'll take that down vote to mean \"no\"... all my leases have a 5% bump every 5 years, plus the annual...all good...apparently someone prefers to leave money on the table).*", "replies": [{"id": "i6b3v69", "text": "To me, the annual increases replace the 5 year bump.  If it\u2019s flat for 5 years and then has a 10% bump, that\u2019s roughly the same (but not as good) as 2% annual increases", "replies": [{"id": "i6bfzpn", "text": "Considering most believe the CPI was bastardized in the mid 80's, the 2 - 3% annual keeps everyone honest, the 5% bump to start a new base is where errors of omission are politely and adequately resolved.", "replies": [], "depth": 4}], "depth": 3}, {"id": "i6f0atb", "text": "You can do 10% every 5 years too or CPI bumps.  I like annual because it compounds but different markets have different norms.\n\nI have never seen someone do both annual and every 5yrs before but if you can make it work then go for it.", "replies": [{"id": "i6f8p83", "text": "I never used to do it either but...about 15 years ago, through a lawsuit, I got copies of some leases (via discovery) from one of the most successful office / retail landlords in the country (this guy prints money...he's an absolute genius in R.E.).\n\n10% bumps every 5 years (I do only 5%) was in every one of his leases.  So....I thought I'd try it.\n\nNot a single person blinked.\n\nNow they're in all my leases.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i64zvni", "text": "It really depends on the details, area, term etc.\n\nSometimes it's as simple as value of land x desired rate of return, but that's for short term leases, rather than multi-decade.", "replies": [], "depth": 1}, {"id": "i65bfd8", "text": "find the best comps", "replies": [], "depth": 1}, {"id": "i65efce", "text": "Cap rate x Assessed land value = ground rent. Escalations as set % and property reassessed at regular intervals. Plus any profit sharing as might be appropriate / the building owner is willing to agree.", "replies": [], "depth": 1}, {"id": "i67j2k0", "text": "This is market, location, use, etc. based, you didn't give any specifics so no one on reddit has even the slightest idea what a fair ground rent is.  \n\nTalk to 3 brokers and get their opinion, you are under no obligation to use them but it will give you an idea.  You may benefit from hiring one.\n\nAlso, make sure you use a legitimate real estate attorney.  Again, I would interview three.\n\nRemember you are negotiating against a global corporation that probably has a real estate team and attorneys on staff, make sure you come prepared.", "replies": [], "depth": 1}, {"id": "i6818kl", "text": "Land Value based on Highest and Best Use\nx\nRate of Return on Land \n\nROR on land (cap rate) would be lower than prevailing building capitalization rates in your market as land is considered a safer (less risky) investment. Typically the CR would still be higher than bond rates / commercial mortgage rates though.", "replies": [], "depth": 1}, {"id": "i8p0txz", "text": "6% of land value, 99-year lease, 2% annual escalations with a 10-year reset capped at 3% annually. \n\nThis will make your ground lease very valuable. Safehold, the public REIT, is structuring their deals like that. It could make it sellable into the 4-4.5% cap rate range once the building is built and tenant  is occupying.", "replies": [], "depth": 1}]