Leasehold (ground lease) financing

Why the remaining term drives everything

At the end of a ground lease, the building usually goes to the landowner. A lender needs its loan repaid well before that, and needs room to sell the leasehold in a foreclosure to a buyer who can still finance it. So the lender works backward from the lease expiration date.

Freddie Mac’s current rule, from Guide Chapter 30 (section revised 02/24/26), is the clearest published standard:

Loan structure	Ground lease type	Remaining term required
Fully amortizing	Either	at least 10 years past loan maturity1
Partial or no amortization	Subordinated (landowner joins the mortgage)	the longer of the amortization period (plus any interest-only period) or 20 years past maturity1
Partial or no amortization	Unsubordinated	at least 30 years past loan maturity1

Worked example: does this lease work?

Illustration only. The loan terms are assumptions; the tests are Freddie Mac’s rules above.

An apartment building sits on a ground lease with 35 years remaining. The owner wants a 10-year loan with 30-year amortization and 2 years of interest-only.

Test	Required remaining term	35 years remaining passes?
Subordinated lease: the longer of amortization plus interest-only (30 + 2 = 32 years) or 20 years past a 10-year maturity (30 years)	32 years	Yes
Unsubordinated lease: 30 years past a 10-year maturity	40 years	No
Unsubordinated lease, 5-year loan instead	35 years	Yes, exactly

The same building can be financeable or not depending on whether the landowner subordinated and on the loan term you pick. When the term falls short, the owner’s options are a shorter loan, a lease extension negotiated with the landowner, or a lender with a different standard. Other lenders publish less, but most apply the same logic.

Clauses lenders need in the ground lease

Clause	Why the lender needs it
Notice and cure rights	The landowner must notify the lender of a tenant default and give it time to cure before terminating
New lease on termination	If the lease is terminated anyway (for example in a bankruptcy), the lender can demand a new lease on the same terms
Free assignment	The lender, or a buyer at foreclosure, can take over the lease without the landowner’s consent
Leasehold mortgage permitted	The lease allows the tenant to mortgage the leasehold
Casualty and condemnation proceeds	Paid to the lender to rebuild or repay, not to the landowner
Estoppel	The landowner confirms the lease is in effect, the rent, and no defaults
No merger	The leasehold and fee do not merge if one party acquires the other

If the lease lacks these, the lender will ask for an amendment, and the landowner may charge for it.

Ground rent and how it affects sizing

Ground rent is an operating expense, so it comes out of NOI before coverage is tested. Watch the reset terms: a lease that resets rent to a percentage of land value, or to market, can cut NOI sharply on the reset date. Lenders underwrite the rent that will apply during the loan term, including any scheduled reset. Run the effect in the DSCR calculator, and the value effect in the cap rate calculator, since buyers price a leasehold below the same building on owned land.

Which lenders do leasehold loans

All the major permanent lenders will finance a leasehold that meets their rules:

• Fannie Mae and Freddie Mac on apartments, under their published ground lease requirements.
• FHA programs, subject to the statute and the MAP Guide.
• Life companies on high-quality leaseholds, often in major markets.
• CMBS conduit lenders, which commonly finance leasehold retail, hotels and office.
• Banks, case by case, more often with a subordinated lease.

Common deal killers

• Too little remaining term for the loan structure.
• A landowner who will not sign an estoppel or amend the lease for the lender.
• Ground rent resets that erase cash flow during the loan term.
• Lease restrictions on use or assignment that would block a buyer at foreclosure.

Where it wins and where it loses

Leasehold financing makes ground-leased buildings financeable at nearly the same terms as owned-land buildings when the lease is long and lender-friendly. It loses value fast as the remaining term shortens, and an unsubordinated lease with a short term can leave only short or fully amortizing loans as options. A single-tenant building on leased land may also fit credit tenant lease financing if the tenant is rated.