Ground leases taking root in affordable housing deals as costs rise

Ground leases are becoming a more viable option for affordable housing deals, particularly those involving 4% Low-Income Housing Tax Credit (LIHTC) projects. As construction costs and interest rates continue to rise, developers are looking for alternative sources of capital to fill the funding gap. Ground leases, which involve a long-term lease of the land underlying a property, are being used to provide this gap capital.

Safehold, a company that specializes in ground net leases, is using 99-year terms and fixed 2% annual increases to provide a stable source of funding for affordable housing projects. This structure allows developers to access capital while minimizing the risk of rising land costs. By using a ground lease, developers can focus on constructing and operating the property, while Safehold assumes the risk of long-term land ownership.

As the affordable housing landscape continues to evolve, it's worth watching how ground leases become a more integral part of deal-making. With rising costs and increasing competition for funding, developers and investors will need to get creative with their financing strategies. The use of ground leases in affordable housing deals may become more widespread, and industry players will be keeping a close eye on how this trend plays out, particularly in terms of its impact on project feasibility and long-term viability.

Originally reported by housingwire.com. LeaseNews adds analysis for real estate & property readers.