Can the fee owner mortgage the fee while a leasehold mortgage is outstanding?

How fee and leasehold mortgages coexist on the same property

The fee interest and the leasehold interest are separate property rights. Each can be financed separately. The fee owner's lender (the fee mortgagee) takes a security interest in the fee interest only, including the right to receive ground rent payments, and the operator's lender (the leasehold mortgagee) takes a security interest in the leasehold estate and improvements only.

The fee mortgage is subject to (subordinate to) the leasehold-mortgagee protection package built into the underlying ground lease. Fee-mortgagee foreclosure replaces the fee owner with a new fee owner (the foreclosure purchaser), but the ground lease and the leasehold-mortgagee's protections survive, the leasehold continues on its existing terms, and the new fee owner steps into the existing fee owner's position.

Ground-rent stream as fee-mortgagee collateral: the fee mortgagee's primary collateral in a stable ground-lease financing is the ground-rent stream (effectively a credit-tenant lease against the operator). Pricing on a fee mortgage in this structure depends on the operator credit, lease term, escalation structure, and the leasehold-mortgagee protections (which protect the fee mortgagee's interest by preserving the leasehold tenant's continued performance).

Inter-creditor confirmation: at closing of any new loan in this structure, both lenders typically execute or acknowledge an inter-creditor agreement (or estoppels) confirming the priorities and protections. This is standard practice on modern ground lease portfolios where the fee owner is an NYSE-traded ground-lease REIT and the operator is the financeable leasehold party.