Kawa Launches Ground Lease 2.0 to Ramp Up Ground Lease Investment

Asset management firm Kawa Capital Management has launched Ground Lease 2.0, a new investment platform that will expand the company’s existing exposure to ground leases. The firm will deploy capital on ground leases in secondary and tertiary markets, and it is offering attractive terms with 70% loan-to-cost.

“We have seen a surge in demand for ground leases. We got into this space five years ago, and we have completed 28 transactions with more than $1 billion in transaction value,” Jacques Holzmann, director at Kawa Capital Management, tells GlobeSt.com. “Over the last two years, there are a lot more competitors.

Holzmann welcomes the competition, which he says will only help to increase activity and awareness about the niche asset class. “I think that is a good thing because there are more people to educate the market,” he says. “There are more people looking at the ground lease as an alternative form of financing. As banks and lenders get comfortable lending on leaseholds, the market continues to ramp up.”

The firm was originally attracted to ground leases because they resemble the NNN lease market. “We have been in the real estate space for quite a few years now. About five years ago, we were introduced to the ground lease space structure,” says Holzmann. “We had played a lot in the NNN lease space, and we saw ground leases as the next foray into NNN leases in that it is an absolute NNN lease.”

As the NNN lease market became more competitive, the firm chases yield to the ground lease sector. “The NNN lease space started to get pretty crowded and cap rates started compressing quite a bit,” says Holzmann. “We saw this as a way to have a similar type of credit-based real estate investing through the ground lease space.”

Ground Lease 2.0 will focus on secondary and tertiary markets, but otherwise, the firm has not parameters in terms of where it plans to invest or the deals it will consider. “We are industry and geographically agnostic. We have a pretty broad spectrum of deals across the US,” says Holzmann.

Because ground leases are not a standard asset, Kawa isn’t committed to any specific goals in terms of capital allocation. “Ground leases is not your typical product where you can broadly have a goal because it is a longer sale cycle and some ground leases are longer than others,” says Holzmann. “We tend to not have a super specific mandate so we can actually deploy on ground leases ranging in size from $10 million to $300 million.” Instead the firm is focused on the number of transactions. Holzmann says it will be a good year if the firm closes eight to 12 deals in the next 12 months, regardless of size.