Master Lease – Southern California Lease Purchase
Description – A university in Southern California owns the land on which a 500+ unit apartment building was built. There is a 99 year lease on the land and upon the end of the term, the improvements will revert back to the Lessor. Rutherford (Lessee) is responsible for the improvements and all associated liability.
The Lessor’s goals:
- Create durable income, cash flow plan
- Eliminate ongoing management
- Eliminate liability and financial risk of the improvements
- Receive the improvements back in the future upon the term of the lease
There were several steps for this lease:
- Step 1: Rutherford purchased the improvements subject to a 99 year lease
- Step 2: Rutherford asset manages the property and provides ongoing lease payments to the Lessor
- Step 3: Lessor to receive back the improvements upon the lease term
| BEFORE | AFTER | |
|---|---|---|
| Ownership Responsibility: | Daily property and asset management | No management responsibility |
| Liability: | Full responsibility for asset and liability | Rutherford takes full responsibility for the asset and pays property insurance |
| Income Durability: | Based on market fluctuation | Provides ground lease payments regardless of the market changes |
| Cashflow: | $600,000 | $800,000 |
| Lease Term: | – | 34.5 Years |
| Ownership Structure: | Fee ownership | Fee ownership |
| Management: | 3rd Party Management | In-house management |
| Property Taxes: | Current property tax basis | Current property tax basis |