Less than a year ago, a little-known New York-based real estate startup launched in the Triangle.
Called Groundly, it piloted a land leasing program that offered properties – ranging from $514,000 to $1.7 million in desirable suburbs – at 25% below market value.
But there was a catch: the land was not included.
Buyers would own the homes, but the seller would retain ownership of the land on which they stood under a 99-year lease. The concept, the company said, made home ownership “more attainable and affordable.”
Did anyone respond to that?
Short answer: No.
“Not that I know of,” said listing agent Charles Franklin, a broker with Durham-based West and Woodall Real Estate. He didn’t want to speculate why.
Around the same time, Groundly also launched in the Nashville area.
The company did not respond to requests for comment.
Leasehold as a financing product
Although leasehold contracts are not new, they are unusual in the housing market, real estate agents say. But in recent years, as inflation, rising mortgage rates and high home prices put homeownership out of reach for many, they emerged as an alternative solution to home financing.
Groundly launched its program last August. Under the business name Groundly Home Owner LLC, it closed on six properties across the Triangle, tax records show. A few months later, it put most of the homes back on the market at below-market prices with leasehold leases.
Take, for example, a brand-new, 1,760-square-foot modern ranch on Nassau Street, just minutes from downtown Durham. Last October, the three-bedroom, three-bathroom home was listed for $355,000 after Groundly bought it for $500,000 on Aug. 7.
At the time, Groundly’s terms meant that future owners would pay ground rent on top of mortgage payments, starting at $613 per month and increasing by 2% each year.
After 55 years, they would have the option to purchase the land for $1, but conditions applied.
Today, after several price changes, the house has been relisted – without the leasehold – for $525,000. It was listed in May. As of June 29, it remains on the market.
Other mentions of Groundly:
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A 5,081-square-foot custom-built Craftsman on Collins Drive in Raleigh’s North Hills was listed for sale last September 21 for $1.27 million with an initial monthly leasehold starting at $2,295. The listing was removed on January 24 and relisted without the leasehold on March 14 for $1.8 million. The price dropped to $1.775 million on April 24. As of June 29, it remains for sale.
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A four-bedroom, three-bathroom traditional home in the Lake Hogans neighborhood of Chapel Hill listed on Sept. 28 for $505,000, with an initial monthly lease starting at $976. On Jan. 23, the listing was removed and relisted without the leasehold for $700,000. The price dropped to $675,000 on April 25. As of June 29, it remains for sale.
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A four-bedroom, four-bathroom traditional home in Durham’s Brightleaf neighborhood was listed on Nov. 3 for $575,000. The listing was removed on Jan. 24 and relisted without the lease on March 28 for $580,000. The price increased to $650,000 on May 31. As of June 29, it remains on the market.
According to N&O, Groundly expected to offer a total of six properties for sale under the same conditions.
Two other homes had been purchased: 3 Moss Creek Ct. in Durham, bought for $770,000 on Aug. 31; and 202 Calderon Dr. in Chapel Hill’s Southern Village, bought for $915,000 on Aug. 15. Both were relisted months later at similar market values.
The Durham home, now listed for $775,000, is now pending sale. The Chapel Hill home sold on May 1 for $920,000.
What they experts say
When Groundly first launched, local brokers and lenders urged caution. Now, they say, they’re not surprised it hasn’t gotten off the ground yet.
“I imagine the land leasing concept would work if it were part of a planned neighborhood and all the houses were the same,” said Samantha Greaves, a real estate agent with RED Collective | COMPASS in Durham. “But as an outsider it doesn’t work.”
Nate Haines is a senior loan officer at Chapel Hill-based Robby Oakes Mortgage Team. He said he saw “red flags” when Groundly launched with its 2% annual rent increases.
He believes that buyers, guided by their agents, are becoming increasingly savvy. “The Triangle market tends to attract buyers who are adept at research and data crunching,” he said. “Buyers [are] hesitate when they see something that goes against them or seems out of place.”
NC Reality Check is an N&O series that holds those in power accountable and shines a light on public issues affecting the Triangle of North Carolina. Do you have a suggestion for a future story? E-mail realitycheck@newsobserver.com
