Numerous publicly traded real estate trusts (REITs) have faced challenges in the past year, with returns largely trailing stock market indexes. But REITs that are focused on ground leases — owning the land without owning the buildings that sit on it — have been an exception.
Splitting the ownership of commercial land from the buildings that sit on it isn’t a new idea. In some ways, it’s the same financial structure that medieval royalty used with its subjects. But the democratization of ground leases and their growing popularity is reflective of other kinds of securitization across the economy — creating narrower and more focused return characteristics to suit the needs of different classes of investors.
