Ground Lease Financing
Ground Lease Financing is a structured form of commercial real estate financing where the Leased Fee Interest is bifurcated from the Leasehold Interest, creating a legal separation of the property’s land from its improvements. CTL Capital provides Ground Lease Financing for existing ground leases or qualified properties where a bifurcated ground lease can be created.
This bifurcation creates two estates, subject to the terms of the ground lease, that can be separately owned and financed, allowing the sponsor to maximize leverage and increase equity returns. Typically, the Ground Lease is an absolute net lease for a long-term basis (50-99 years) and allows for fixed-rate, long term (typically 30-40 years) senior debt funded by the Ground Lease payments.
Commonly the land component allocation of the building relative to the property’s stabilized value is from 35-45% yielding ground rent coverage of 3-5x. The overall cost of capital to sponsors is typically lower than a senior or mezzanine financing structure, providing low cost permanent capital with no balloon risk.