A ground lease is a long-term lease of vacant land, typically 20 to 99 years, in which the tenant constructs and owns their own building on the leased land, with ownership of the improvements typically reverting to the landowner at lease end. This structure lets tenants control the physical development while avoiding the capital cost of purchasing land outright.
Why ground leases are used
Ground leases allow a tenant or developer to build exactly the facility they need without the upfront capital cost of land acquisition, while landowners retain long-term ownership of the underlying real estate and eventually gain the improvements at lease end. This structure is common for build-to-suit industrial development on land owned by institutional investors, municipalities, or long-term landholders.
What to watch for before committing
Lease term length vs building useful life
Confirm the ground lease term is long enough to justify the capital investment in constructing your own building.
Reversion terms at lease end
Understand exactly what happens to your building improvements when the ground lease expires, since ownership typically reverts to the landowner.
Rent escalation structure over a long term
Ground leases often span decades — carefully review how rent escalates over such an extended period.
Financing implications
Understand how a ground lease affects your ability to finance construction, since lenders view leased land differently than owned land as collateral.
Renewal and extension options
Negotiate renewal options with clear terms, given the long-term nature of the commitment.
Subordination and lender protections
If financing construction, ensure the ground lease includes appropriate subordination provisions protecting your lender's interest.
When you need to know this
- Build-to-suit development without land purchase — controlling facility design while avoiding upfront land acquisition cost
- Long-term operational commitments — businesses planning multi-decade operations at a specific location
- Institutional or municipal-owned land opportunities — accessing sites where the landowner prefers to retain ownership long-term
- Evaluating financing structures for new construction — understanding how ground lease terms affect construction lending
Frequently asked questions
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