On ground-leased CRE the borrower owns the leasehold improvements and the mortgage encumbers the leasehold estate , not the fee . Lender requirements differ materially: lease term must exceed loan amortization by 10 to 30 years, the fee owner must execute a recognition / non-disturbance agreement , and the leasehold mortgage typically receives expanded notice-and-cure rights against fee defaults.
Why leasehold financing requires a different lender options and toolkit
On a fee-simple CRE financing, the mortgage encumbers the borrower's fee interest and the lender's foreclosure remedy reaches both the land and improvements. On a ground-leased asset the borrower owns only the leasehold (and improvements), and the leasehold mortgage encumbers only the leasehold estate. The fee owner remains a separate party with separate interests.
Leasehold financing requires review of the ground lease, mortgagee protections, remaining term and the property economics. Compare actual lender terms rather than assuming a fixed premium over fee-simple financing.
Term-versus-amortization mismatch: rating-agency criteria typically require remaining ground lease term to exceed loan term by a defined cushion (CMBS rating criteria typically expect remaining term beyond loan maturity of 10 to 30+ years, depending on the structure). Leasehold loans on short residual ground lease terms are difficult or impossible to place at scale.
Leasehold-versus-fee LTV split: lenders size the loan against the leasehold value (which excludes the fee interest) rather than the combined property value. The fee owner's residual interest is a separate value pool not collateral to the leasehold mortgage.
Sources
- Modern Ground Leases and Leasehold Financing: Urban Land Institute Reports · Urban Land Institute (ULI) · 2024