Maximize Leverage in Ground Lease Financings

Recent developments in CTL financing involve providing greater levels of leverage through financing the fee interest in a site when the site is not subordinated to the ground lease.  Typically the debt service coverage for a site that is not subordinated to the ground lease will be 3 to 4 times the debt service on the site loan, since the cash flow available from the development free of the the ground lease and before any leasehold financing, will be available to the ground owner and his lender in the event of a default. This is because the site is primary in title to the improvements.

The primary position of the fee interest allows for 100% financing of the value of the fee at an attractive long term fixed interest rate.  The loan is non-recourse and investors are the typical CTL lenders such as national life insurance companies and pension funds. The costs for a CTL ground lease execution are similar to any other long term real estate financing.

Non-Profit Borrowers should consider this financing in P2P deals where they retain ownership of the site with a long term ground lease from the developer of their facility.