Getting a loan with a ground lease, how are they arranged?

Question

I have leased my land to a tenant over a 25 year term. It was land gifeted to me and had help leaseing it out. The tenant built the building and are strong national tenant.

Q: Can I use this lease as 'collateral' and get a mortgage loan--the equivalent of a cash out loan equal to the remaining term? Also, would a bank appraise the property if they did none of the improvements? The tenant would not be involved so-to-speak. Thanks!

this is not asking for a loan proposal. just want to know if i could ever monetize the lease and the mechanics surrounding it.

Joel Owens · Answer

The lender will look at how the ground lease is constructed and the value of it with a tenant guarantee for the length of the payments.

A ground lease with 25 years primary term and annual rental increases can be seen as more valuable then a ground lease of 25 years but 5 or 10 years primary then option periods. Option they do not have to renew so lender do not typically count them.

Strong national tenants that are investment grade BBB- or better for ground lease usually sell for around 5 caps.

So if rent is 100,000 annually on ground lease then 2,000,000 value at a 5 cap. Ground lease usually has if tenant does not renew the option periods then the owner gets building for free by default.

Getting a loan with a ground lease, how are they arranged?

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