Owners of leasehold buildings are regularly surprised when a refinance dies on the ground lease rather than the property. The building is full, the coverage is fine and the lender still says no. The reason is a term test, and it fails long before the lease runs out.
| Years remaining | Longest loan that clears the test | Practical result |
|---|---|---|
| 60 | 30-year | Fully financeable. No conversation. |
| 45 | 15-year | Normal permanent debt available. |
| 40 | 10-year | Exactly at the line. Most lenders want cushion and will push back. |
| 38 | 8-year | Off the run rate. Pricing worsens, proceeds fall. |
| 35 | 5-year | Bridge territory. Agency permanent debt is gone. |
| 32 | 2-year | Effectively unfinanceable on normal terms. |
| Under 30 | None | Cash buyers only, and the leasehold stops being like-kind to a fee. |
Read that table as a schedule rather than a snapshot. Every year that passes moves the asset one row down, and the drop from row to row is not linear. Between forty-five and thirty-five years remaining a leasehold loses most of its lender audience.
A lease can have plenty of term and still fail. The other common disqualifiers are a rent that is not a fixed ascertainable sum, most often because the lease carries a fair-market-value reset, and a missing mortgagee protection package: notice and cure rights, a new lease on rejection, consent on amendments.
Legacy leases written in the 1960s through the 1990s frequently fail on all three at once. They were drafted before leasehold lending had a standard form and nobody has touched them since.
Extend. The fee owner agrees to add term. Cheapest if the fee owner is reachable, rational and unrepresented by someone who has just discovered leverage.
Buy the fee. The leasehold owner acquires the land and merges the estates. Cleanest, and the most capital-intensive, because it requires exactly the money the refinance was supposed to produce.
Replace the fee owner. A new fee owner buys the land and re-papers the lease to a ninety-nine year unsubordinated institutional form. The leasehold becomes financeable again, the seller gets liquidity for an asset they were passively holding and the operator keeps the building.
That third path is what we do. The fee seller is usually an estate, a family partnership or a long-dormant trust holding an asset with no management and slow-growing rent. They are not opposed to a check.
Fee owners negotiate very differently when they know there is a maturity date behind you. The right time to fix a short lease is three to five years before you need the money, when the conversation is about certainty rather than rescue.
Because its exit is a sale or a refinance, and the next lender applies the same test. A loan that matures into an unfinanceable leasehold has no takeout.
It is the published agency standard for unsubordinated ground leases and the market treats it as the benchmark. Balance-sheet lenders have discretion, but they price the exception.
Often yes, and it is usually the cheapest fix. The obstacle is rarely refusal. It is that the fee owner is an estate or a trust with several signatories and no urgency.
Yes. Agency guidance requires rent to be a fixed ascertainable sum and treats reappraisal-based resets as unacceptable. A lease can have ample term and still fail on this alone.
Then the practical options are a cash sale of the leasehold, or a third party acquiring the fee. We will look at the second.
A fee acquisition with a new lease is a normal real estate closing. The long pole is almost always locating and aligning the fee owner, not the documents.
Two facts get you an answer: years remaining on the ground lease and when your debt matures. We will tell you which row of the table you are in and what the fee position would cost.
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