Threadjacked from the Mira Mesa is Hot thread… Does this make sense?

[UCGal]

[quote=AN]Talking about jobs in MM, looks like good time is here again: http://www.utsandiego.com/news/2012/jun/11/shire-add-several-hundred-biotech-jobs/?sciquest
< snip >[/quote]

So – in the article it talks about Shire building a new building in Sorrento Valley.

But they’re doing it on leased land….

Does that make any sense? Buildings are not cheap, and in theory, the owner of the land will get the benefit at the end of the 20 year lease.

Tell me what I’m missing.

[an]

Who own the land? It could be possible that the “company” that own the land is owned by the same people, but they keep it separate for tax reason? I’m just guessing. If not, maybe this is just how commercial RE work… Any commercial RE expert willing to shed some light?

[sdrealtor]

There is no free lunch. Something about the way the deal is structured makes sense for both parties but most likely that is between them

[an]

Agree, there’s no such thing as a free lunch. I’m sure both side get what they want out of this deal. For a 20 years lease, it’s almost like they own it. They also mentioned they have the right to extend the lease after 20 years. They might also built into the lease the buy out of the land (kinda like lease cars?) after 20 years?

[njtosd]

Do you know how long the lease is? There are things such as 99 year leases (which functionally outlive the value of the buildings). My understanding is that the WTC complex was arranged that way . . .

[CA renter]

It’s called a land or ground lease, and it’s not at all uncommon in commercial real estate, especially in areas where buildable land is scarce. IMHO, it’s great for the landlord, not so great for the lessee/tenant/developer.

A twenty-year term seems very short, though.

…………

More:

“B. Ground Leases in General
1. Characteristics of a Ground Lease. While purchase and sale
transactions of real property may be more familiar, a significant portion of improved land
in the United States is constructed on ground-leased land. Examples include the
Empire State Building and the World Trade Center complex in New York.
A ground lease is typically a long-term lease of unimproved land or
previously developed property that requires the tenant to construct new improvements.
Lease terms typically run 50 to 99 years, and generally no less than 30 years. The
tenant typically holds ownership of the improvements during the term of the lease and
the tenant has the obligation to pay all expenses attributable to the property except the
mortgage on the landlord’s fee interest and income taxes owed by the landlord.
Because of the significant improvements by the tenant, a mortgage of the leasehold
estate is the norm.”

http://www.utsystem.edu/reo/articles/ground%20leases_basic%20legal%20issues.pdf

[Coronita]

No worries. If history is an indicator, 20 years is most likely longer than what most biotech companies last anyway.

At least the biotech company didn’t do what a lot of biotech companies do.

1. Have 1-shot hat trick
2. The sudden wealth makes them feel great, and they go out and spend spend spend on a building
3. Something happens (FDA issue, or partnership falls apart), resulting in the company stock tanking/collapsing
4. Layoffs galore, sell the property at cheap and lease it back, and finally wind down.

don’t believe me? let’s not mention the biotech company in Carmel Valley right next to the police station…Forget the name of it….

[Author]

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