Ground Leases vs. Fee Simple Ownership

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Featured Article

When investors and developers look at long-term real estate strategies, one question comes up again and again:
Should I hold the land, buy the building, or do both?

In today’s environment—with higher interest rates, compressed yields, and operators seeking capital-efficient structures—understanding the difference between ground leases and fee simple ownership is more important than ever.

Both strategies create strong returns, but they serve very different goals. Here’s how to think about them in 2025.

🏗️ What Is Fee Simple Ownership?

This is the traditional model: you own the land and the building. You collect rent from the tenant and benefit from appreciation on the entire asset.

Why investors like it:

• Higher cap rates → higher immediate yield

• Full control of improvements

• Better depreciation benefits

• Easier financing

• Stronger value-add potential

Most STNL deals fall into this category, and for many investors seeking income + stability, this is the default choice.

🌎 What Is a Ground Lease?

In a ground lease, the investor owns only the land. The tenant (often a national retailer or QSR) pays to construct and maintain the building and improvements, typically on a 20–50 year lease term.

Why investors like it:

• Extremely passive (often more passive than NNN)

• Zero landlord responsibility

• Strong rent escalations

• Long-term, bond-like income

• Residual upside when improvements revert at lease end

Ground leases are some of the most predictable, low-volatility investments in CRE.

🥊 Ground Lease vs. Fee Simple: Which Comes Out Ahead?

Here’s how the two structures compare:

1. Yield vs. Safety

• Fee Simple: Higher yield, slightly higher risk

• Ground Lease: Lower yield, extremely low risk

Think of fee simple as buying income.
Think of ground leases as buying a bond secured by real estate.

2. Control vs. Predictability

• Fee Simple: You control the whole asset—including future redevelopment

• Ground Lease: Tenant controls improvements, but you control the dirt

Ground leases shine when long-term stability is more important than short-term upside.

3. Residual Value

At the end of a ground lease, all improvements revert to the landowner—often creating significant value without additional investment.

Fee simple assets can also appreciate, but they require capital, leasing, and re-tenanting to maintain value over decades.

4. Tenant Profile

Ground leases typically attract:

• National QSR brands

• Large convenience store chains

• Big-box retail

• Institutional-grade tenants

Fee simple attracts a broader range, from mom-and-pop to corporate.

5. Financing Environment

In 2025, lenders view ground leases as some of the lowest-risk assets available.
However, leverage is usually lower due to their bond-like nature.

Fee simple properties offer better financing flexibility—important for investors wanting to optimize returns with leverage.

🧠 So Which One Should You Choose?

It depends on your strategy:

Choose Ground Leases if you want:

✔️ Almost no management
✔️ A defensive, low-risk portfolio piece
✔️ True passive income
✔️ Inflation-protected rent bumps
✔️ Long-term stability over near-term yield

Choose Fee Simple if you want:

✔️ Higher cash flow
✔️ Greater control
✔️ Ability to influence appreciation
✔️ Flexible financing
✔️ Value-add potential

Both structures have their place—and many sophisticated investors hold both to balance yield and risk.

📬 Final Thought

The smartest investors in 2025 are looking beyond cap rates and evaluating lease structure, control, and long-term value. Whether you're building a stable portfolio or planning a legacy strategy, understanding ground lease vs. fee simple dynamics is essential.

If you want help analyzing which structure fits your long-term goals—or want to review active opportunities—reply to this email. I’d be glad to walk you through the numbers.

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