Zekendorfing
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Splitting Up the Bundle of Rights
Bill Zeckendorf became famous in the 50s as the Trump of his time in NY. One of his ways to finance his syndicated purchases was to finance each part of the property separately (leased land, building, leasehold, sandwich lease, air rights, etc.). When I was on my first honeymoon in 1960 at the Highlands Inn in Carmel, Ca., I met a fellow traveler from the east who then owned the 27th mortgage on the Empire State Building.
Exposure to these concepts led me and other SEC’s to attack properties pitched at meetings in various ways to see how to extract different sets of benefits from each property to satisfy varying kinds of objectives of others in order to solve for everybody (an SEC dedication). One of the very “pregnant” concepts that come from such “attack” is the idea of using leased land in lieu of note and mortgage in many circumstances that work better for both parties. I have preached the use and benefits of such land leases for years and have at least 2 SEC’s who agree with me.
The idea of this article is to review the concept of looking at a real estate vehicle in more ways than the way it is usually presented to the market place: as a whole.
It’s no news that some of the subdivisions of FEE TITLE of one piece of real estate might be:
- mineral rights
- water rights
- rights of way or easements
- air rights
- leaseholds (master, sub, and partial)
- remainder
- various kinds of estates (life, provisional, subsequent, etc.)
- Lien holder rights
- assessment rights
- etc., etc. = you can find additional rights to add to this list
All of these separate rights may be subdivided in various ways for various purposes.
So, when a property is brought to the market to solve some objective(s) of the owner, it is possible to make parts of the property more appealing to each of several different client situations by looking at how to extract different sets of benefits for each by ZECKENDORFING.
Example: Listing = Partially leased (30%) ugly, multi tenant warehouse across the tracks in E. J., North Dakota. Owner = widow of former user of the property, who can’t seem to sell it and the property has negative cash flow.
A farm management co. is found to lease/option the project at 0 rent to start, so they could sub-lease parts to their clients who had machinery and storage needs.
A speculator was found who would offer an encumbered condo in a town near the widow’s grand children for part of the equity in the warehouse improvements, with the widow retaining the land under on graduated lease payments. Two Free and Clear lots in a slow-to-sell subdivision were added to complete the widow’s equity.
The negative cash-flow remained the same at close, but the widow could sell her home or her new condo to eliminate that, the operation of the graduations in the income from the old warehouse, using the entrepreneurship of the succeeding parties would put her latent equity into growing cash-flow and all parties get rewards.
The “bundle” or FEE was divided into:
- subleases to farmers
- master lease to management company
- land retained
- land leasehold (including improvements and depreciation) to the speculator
Pretty simple!
Want to see some exotic Zeckendorfing in practice?
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