WASHINGTON, DC-Jones Lang LaSalle is marketing for sale the long-term ground lease on 1150 18th St., NW in Washington, DC’s CBD. The borrower is in default on the first mortgage loan and has entered into a standstill agreement with the lender and deposited into escrow a deed in lieu of foreclosure.

This means, essentially, that the purchaser of the first mortgage loan will acquire the fee simple title to the land parcel with little additional paperwork. JLL’s John Kevill and Collins Ege are handling the transaction, with financing assistance from Real Estate Investment Banking executive vice president Ben Singer.

Ground leases are more common in cities such as New York, where supply is greatly constrained. They are done in the DC area, but primarily with the Washington Metropolitan Transit Authority. The marketing of this particular ground lease is not a reversal of that trend, Kevill tells GlobeSt.com. “It is just indicative of the particular circumstances.”

Given their relatively rarity and the unique role this ground lease could play in an investor’s portfolio, Kevill is not expecting this asset to price at distressed levels. “Because of its location in Downtown DC, the long-term nature of lease and the low-yielding Treasury environment, there has been significant preliminary interest,” he says.

This deal is expected to price more as a fixed income instrument than a real estate deal because there is 96 years left on the ground lease, with the rental rates scheduled to increase at a regular clip. Also, the leased fee interest is senior to the leasehold mortgage. 

In short, an investor would not be exposed to the ups and downs of the commercial real estate market. The ground lease will likely trade a few hundred basis points lower than if it were a traditional real estate deal--somewhere over 30-year Treasuries, but not by that much. The property is a 10-story building with 17,000-square-foot L-shaped floorplates. It is leased to multiple tenants.