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Who would buy a building like this without the land? How does it make sense?
by hleszek 2y ago
Who would buy a building like this without the land? How does it make sense?
- not2b 2y agoThis sounds like the leasehold concept in the UK.
- chrisco255 2y agoLots of people do. McDonald's franchise owners do the same, as do CVS pharmacies, iirc. It's for capital efficiency, and it especially makes sense in markets where the land is very expensive like Manhattan, or for a business that is trying to expand rapidly. Instead of borrowing (for illustration sake) $2 million to buy a lot and building, you can have another party buy the land for $1 million and then you only have to borrow $1 million to build the building. Your total debt is now $1M instead of $2M. You now have another $1M in lending power to go open a second location.
- reverius42 2y agoWhy not lease the building, too? In the case of McDonald's I can imagine it's because only McDonald's wants the specific building (which looks and serves a purpose specifically like a McDonald's), but if it's a generic office building, why wouldn't you prefer to lease both the building and the land it's on (assuming you prefer to lease at all)?
- chrisco255 2y agoWhen it's a generic office building, businesses frequently do lease them, unless they have so much free capital (like Apple, Facebook, etc) that they can build a custom building for themselves as a long-term HQ. But you're right with McDonald's and many franchises they have to build with a specific architecture style that's custom to their brand.
- katzinsky 2y agoProperty taxes in NYC are high enough that owning the land doesn't really save you much the way it does in most places.