Most first-time NNN buyers picture the same thing when they think about triple net investing: you own the building, you own the land under it, and the tenant pays you rent to occupy both. That’s true for a lot of net lease inventory, but not all of it. Some NNN opportunities, including ground leases involving major QSR brands, separate ownership of the land from ownership of the improvements.
Knowing which structure you’re looking at changes what you’re actually buying, and it’s a detail that doesn’t always jump off the offering memorandum.
I’ve seen buyers focus on the tenant, rent, and cap rate before answering the most basic ownership question: what exactly will I own at closing? Start there.
Fee Simple: The Structure Most Investors Picture
In a fee simple NNN deal, you own the building and the land underneath it as a single asset. The tenant leases the whole thing and, in a triple net structure, covers property taxes, insurance, and maintenance to the extent required by the lease.
You collect rent, and ownership of qualifying depreciable improvements may provide depreciation deductions, subject to applicable tax rules. At the end of the lease, if the tenant leaves, you own a building you can re-lease, renovate, or sell as-is.
This is the default assumption for a reason. It’s a familiar structure across single-tenant retail, and it’s what investors often picture when discussing ownership of a NNN property.
But don’t let the familiar structure become an assumption. Confirm the ownership interest before you underwrite the deal.
Ground Lease: You Only Own the Dirt
A ground lease separates land ownership from the tenant’s leasehold interest and, in many structures, ownership or control of the improvements during the lease term. You own the land in fee simple. The tenant may construct, own, operate, and maintain the improvements during the lease term, depending on the agreement.
Ground net lease structures can therefore separate the landlord’s fee interest in the land from the tenant’s interest in the improvements. An SEC-filed description of a ground net lease structure illustrates this separation between the landlord’s fee interest and the tenant’s interest in the improvements.
The important phrase here is “depending on the agreement.” Ground leases aren’t interchangeable. The lease determines who owns the improvements, who maintains them, and what happens to them when the term ends.
For accounting and tax purposes, this ownership distinction also matters. The IRS explains that depreciable property generally must be property you own, while land itself is not depreciable.
That means you shouldn’t assume the same depreciation profile for a land-only ground lease that you would for a fee-simple acquisition that includes depreciable improvements. Your tax adviser should evaluate the specific ownership and tax structure.
Ground Lease vs. Fee Simple NNN Lease at a Glance
The ownership difference becomes easier to see when the two structures are compared side by side:
| Factor | Fee Simple NNN Lease | Ground Lease |
|---|---|---|
| Land ownership | Investor owns the land | Investor owns the land |
| Building ownership | Investor owns the building | Tenant owns the building during the lease |
| Building depreciation | Generally available to the property owner, subject to applicable tax rules | Generally unavailable to the landowner because the landowner does not own the improvements |
| Building maintenance exposure | Usually shifted to the tenant under the NNN lease, subject to the lease terms | Tenant owns and maintains its improvements |
| End of lease | Investor retains the land and building | Improvements may revert to the landowner depending on the lease terms |
| Typical investor appeal | Ownership of the complete real estate asset and depreciation potential | Lower landlord responsibilities and limited building-related exposure |
Why the Strongest Ground Leases Trade at the Lowest Cap Rates in the Sector
This is the part that surprises a lot of first-time buyers. A lower cap rate means a higher price relative to income, and ground leases involving strong-credit QSR tenants can trade at particularly tight cap rates.
For example, The Boulder Group’s Q2 2026 Net Lease Research Report reported that ground lease product for tenants such as McDonald’s and Chick-fil-A was asking 4.45%, the lowest cap rate in the sector. The report placed the corporate QSR asking cap rate at 5.85%.
Those figures are asking cap rates, not closed-sale data, and they’re a snapshot of that particular market period. Still, they illustrate how investors may place a premium on long-term ground leases backed by strong tenants.
The reason deserves more analysis than simply calling the investment “lower risk.” A well-structured ground lease can shift substantial building maintenance and capital responsibilities to the tenant, while the tenant may also have significant capital invested in improvements on the landlord’s land.
That can be attractive. But I wouldn’t assume it eliminates every landlord risk. Credit quality, lease term, rent increases, location, financing, assignment provisions, casualty language, condemnation rights, and reversion terms still matter.
A low cap rate tells you what the market is asking you to pay for the income. It doesn’t tell you whether you should pay it.
What You Give Up: Depreciation and the Building Itself
The tradeoff for that ownership structure is real. If your investment consists of land and you don’t own or otherwise have a depreciable interest in the building, you generally don’t depreciate that building merely because it sits on your land.
The IRS states that land is not depreciable, while buildings and certain improvements may qualify for depreciation when the applicable requirements are met. IRS Publication 946 provides additional guidance on depreciable property.
That’s a meaningful distinction if depreciation is part of your investment analysis. But tax treatment can depend on the specific facts and ownership structure, so this is an area to model with your tax adviser rather than relying on the label “ground lease.”
Don’t compare two cap rates before comparing what you actually own under each structure.
Reversion: The Long Game Nobody Explains Well
Here’s where ground leases get interesting over a long horizon. Some ground leases provide that improvements become or remain the landlord’s property when the lease terminates or expires. Others can contain different surrender, removal, restoration, or ownership provisions.
This SEC-filed example of a ground net lease structure describes a landlord’s reversionary interest in land and improvements, but that’s an example of a structure, not a rule that should be assumed for every ground lease.
Read the actual reversion and surrender language.
On paper, receiving the improvements at the end of the lease can sound like a bonus. But the value of that future interest depends on what the lease provides and what those improvements are worth when the time comes.
A restaurant or convenience store built decades earlier may be functionally obsolete by the time you get it back, and the value you actually recover could be closer to the land’s redevelopment potential than to the original structure’s worth.
Reversion can be valuable, but it’s an asset you may receive decades from now subject to the lease terms and in a condition that needs to be evaluated, not a guaranteed windfall.
I’ve learned not to assign today’s value to a building I may receive decades from now. Underwrite the land first, then decide how much value, if any, you’re willing to assign to the future improvements.
Term Length and Renewal Options: What to Actually Check
Ground leases are often written for long terms and may include multiple renewal options and scheduled rent increases. But there is no universal 15-to-20-year term or 10% five-year rent-bump structure that you should assume.
Again, the lease controls.
What changes is what happens at the far end of that timeline. A fee simple lease that isn’t renewed leaves you owning the land and building, subject to the property’s condition and other circumstances.
A ground lease that isn’t renewed means the lease’s expiration, surrender, removal, and reversion provisions become critical. You need to know well in advance what rights you’ll have regarding the improvements and what obligations either party has at termination.
Renewal options matter too. A 20-year lease with several tenant-controlled extensions can affect when you actually regain unrestricted control of the site. Don’t look only at the initial term.
How to Tell Which Structure You’re Actually Looking At
The brand on the sign and the cap rate on the flyer won’t tell you this. You have to check the actual lease. Before underwriting the property as either a fee simple NNN investment or a ground lease, confirm these points:
- Who owns the land?
- Who owns the building and other improvements?
- Who is responsible for maintaining those improvements?
- What happens to the building when the lease expires or terminates?
- What renewal options and rent increases are written into the lease?
Look for the words “ground lease” or “land lease” in the offering materials, and confirm explicitly who owns the improvements, not just who’s responsible for maintaining them. A property described as “absolute NNN” can be either structure, since that term describes how expenses are allocated, not who owns what. If the offering memorandum doesn’t spell it out clearly, that’s a question worth asking before you get attached to a specific cap rate.
Key Takeaways
- A fee simple NNN investment generally involves ownership of both the land and improvements, while a ground lease separates the landowner’s interest from the tenant’s leasehold and improvement rights according to the lease.
- Ground leases can reduce building-related responsibilities and capital expenditure exposure, but don’t assume those responsibilities disappear. Read the lease.
- Land itself isn’t depreciable. The depreciation treatment of improvements depends on ownership, depreciable interest, and applicable tax rules.
- Strong-credit ground leases can trade at tight cap rates, but tenant credit alone doesn’t determine whether the price adequately compensates you for the investment’s risks.
- Reversion can eventually give the landowner valuable rights in the improvements, but only if the lease provides for it, and the future value of those improvements shouldn’t be assumed.
- Lease language matters more than marketing labels. Confirm ownership, maintenance responsibilities, renewal options, rent increases, surrender provisions, and reversion terms before underwriting the deal.
Where This Leaves You
Neither structure is better in the abstract. A fee simple property gives you ownership of the land and building and may provide depreciation associated with qualifying improvements. A ground lease can give you a simpler ownership position with potentially less building-related responsibility, depending on the lease, but you’re buying a different bundle of rights.
Both can be attractive NNN investments.
The mistake isn’t choosing one over the other. It’s pricing the deal before understanding what you’re actually buying.
When I compare these structures for a buyer, I want to know what we own today, what obligations remain with us during the lease, what the tenant controls, and what comes back to us when the lease ends. Only then does the cap rate become meaningful.
If you’re comparing a fee simple property against a ground lease opportunity, share your investment criteria with our team. We’ll compare the ownership structure, lease obligations, tenant credit, pricing, and long-term real estate value against your objectives. The goal isn’t to favor one structure. It’s to understand which one gives you the risk and return you’re actually looking for.