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LEASEHOLD INTEREST INVESTMENTS Can one entity serve as the landlord and the tenant, without actually owning the land or occupying the building? The answer is yes, and the legal structure is commonly known as a leasehold interest. Leasehold interest properties have been long viewed as the unknown and unfamiliar within the net lease arena. Ironically, this unknown and often misunderstood investment structure is neither new nor unique. Leaseholds originated from the feudal system of the United Kingdom where it is still widely used today, even in the residential market. While the pace of investments around the world has pushed capitalization rates to record low levels, leasehold interests consistently trade at higher cap rates. The yield is further enhanced by allowing for the depreciation of improvements to the leased property. In its simplest form, a leasehold investment require ppi judicial review s three separate parties; a land owner, a building owner, and a tenant. The leasehold interest is ownership of the building. This entity will have a long term ground lease arrangement with the land owner, and in order to generate a profit, must have a tenant in the building paying a higher rental rate than the underlying ground lease. The return is then created from the difference of the rent paid by the tenant and the ground rent paid to the land owner. In the competitive market for US based investment real estate, there is a never ending search for quality properties in strong locations yielding acceptable returns measured both from a cash-on-cash basis and over the ownership period of the investment. The seemingly endless supply of capital originating from the institutional investors has handicapped the private markets by significantly compressing cap rates and thus returns.