Mandatory prepayment clauses turn a covenant test into a cash demand, frequently with a guaranty behind it. There are only so many places that cash can come from: you, a new equity partner, a new lender, or the asset. The land under the building is the fourth door, and most sponsors have never been shown it.
We buy the land under the property and lease it back to you on a 99-year unsubordinated ground lease. The purchase price funds at the modification or refinance closing and goes to the lender as principal. Ground rent is sized at roughly 25–30% of stabilized net operating income — 20–25% on hospitality — capitalized in the mid-6s, fixed for the full term with 2% annual escalations and no fair-market-value resets. We size proceeds to no more than about 35% of appraised value and to coverage of 3–4× at origination, because a rent the property cannot carry helps nobody.
The rent re-scales to your actual trailing twelve in both directions. If the number moves after diligence, the price moves with it mechanically rather than by argument.
A servicer holding a covenant default has two realistic paths: a modification, or a long and expensive enforcement. A modification arriving with committed principal attached is a different file from one arriving with a promise. And the servicer's position improves structurally, not just numerically: they retain a leasehold mortgage with notice and cure rights on every default, the right to a new lease if the leasehold is ever rejected in bankruptcy, and consent over amendments. We sit outside their collateral, never in front of it, and we never take a lien on the leasehold.
A dollar of NOI buys roughly 16.7× as ground rent at a 6.00% cap, against roughly 11× as amortizing debt at 1.25× coverage on a 7.19% constant. That spread is why the land can retire a shortfall that debt cannot. On a stabilized asset with real income and cheap legacy fixed-rate debt, the land frequently reaches the payoff. On a floating-rate bridge loan at 7.5% covering at 0.7×, the land is a meaningful dent in the hole rather than the whole answer — and we will say so in the first email rather than let you find out in month three.
We do not lend on the leasehold, ever — we arrange leasehold debt and introduce the lenders, but we never hold that paper, because a landlord who is also your lender has interests that conflict at exactly the wrong moment. And we do not subordinate the fee. Not to a construction loan, not to a bridge lender, not for a better price. An unsubordinated fee is what makes this capital cheap and what makes it survive a workout.
The payoff letter or covenant notice and a trailing twelve operating statement. Address, asset type and total capitalization help. That is enough for an indicative land value, implied rent and coverage, usually within a week.
No. We buy the land outright and become your landlord under a 99-year lease. There is no maturity, no amortization, no balloon and no refinancing risk on our piece, because it is not debt.
Rent replaces a larger amount of debt service, so coverage on the remaining loan usually improves. That is the point: a smaller loan plus a fixed non-amortizing rent typically services more comfortably than the original loan did.
No, and this is a firm rule rather than a preference. PACE assessments will not subordinate to a ground lease, which makes the two structurally incompatible. If PACE is already on the property, the ground lease conversation usually cannot proceed until it is resolved.
HUD financing and a ground lease of this kind are effectively mutually exclusive in practice. If the loan is HUD, this is not your tool and we will tell you immediately.
Send the covenant notice and a trailing twelve. We will tell you what the land is worth and whether it reaches your number, honestly, including when it does not.
Email us the property