Ground Leases for CAP funding security
In3 Capital introduces a new option for clients to fund their project through an arranged Ground Lease, a long-established technique that can satisfy In3CAP’s security requirement.
This new option uses traditional Ground Leasing’s lease-back structure where the project owner effectively rents the land (i.e. ground) only, enabling full leverage (100%) project finance, either via the developer’s own contacts or as a “done-for-you” (DFY) service.
What projects can qualify?
Check for basic fit (3 of 4 cornerstones — Size, Sector, and Stage), then return to this page to know more about what else it takes to qualify for a Ground/Infrastructure Lease as Security.
CAP’s Family Office funding is perfect for this as we can supply the full funding … we finance 100%, the full capital stack, with no loan but instead equity as a Joint Venture partnership, subject to approval and negotiation.
It helps if your project’s site is on land listed toward the top of the US or Canada’s most populous cities… List of United States cities by population – Wikipedia or World Population, and you otherwise do not have access to either a Standby LC (SbLC) or cash deposit, but would be open to working with us to arrange an institutional lessor’s sale lease-back structure. We work with groups that do that with us on behalf of our clients.
Who does what?
- You bring a qualifying project that, aside from the Security, is otherwise well defined with close to zero commercial risk. Your business plan’s presentation must be impeccable. Clients don’t have to bring anything else besides this robust project plan, and the identified site in or near a major US or Canadian city (we have begun to expand to other markets as of Spring 2025, starting with the UK), whether you own the land or someone else does.
- In3’s project finance team reviews your project’s proposal and determined preliminary feasibility. If all goes well, we will offer an Expression of Interest (EOI) with indicative terms to take next steps.
- A Ground Lease provider buys the land, pays off the landowner, and thus provides the cash deposit for 100% funding on your behalf.
This approach has become increasingly common given the current limitations of traditional real estate debt markets (source).
You might be surprised to learn how the lease companies value the land in these arrangements … Ground Lease Valuation Model (Updated May 2024) – Adventures in CRE. Many other factors contribute value beyond just the land’s appraised value. This depends largely on your business plan for the site. You will need a proper financial model to get this right.
In major markets (larger cities), Ground Leases and Ground Lease Financing (GLF) have been a successful source of financing for landowners and project developers for decades, now being applies to diverse project sectors, including many of In3’s focus sectors. In other locations, Infrastructure Leasing involving an insurance company would be preferred.
How it works: Ground/Infrastructure Lease Financing is a lease structure where the project owner effectively rents the land (i.e. ground) only. Generally, one party owns the land (i.e. fee simple interest) while the project company owns the improvements (i.e. leasehold interest). In most cases, the owner of the land leases the land to the owner of the project on a long-term basis (50 – 99 years), with an option to buy the land outright every 10 years if not already owned by the project developer.
This structure can provide the necessary Security needed for CAP funding.
For land owners, it also works to generate cash flow from well-located parcels of land without having to operate the property nor give up ownership in the property.
Our partners work with Ground Lease Providers in major markets, typically where land values are higher than more rural areas.
Location and Qualify Sectors: Commercial Real Estate or Renewable Energy or other Infrastructure. Ideally, an apartment complex in a major city, or other housing, hospitality, or other well-qualified projects. This approach can also work for almost any impact project when land is a significant cost.
US and Canada locations would be considered, as many populous Canadian cities are along the US border.
What about rural settings? Probably not, though energy projects are routinely located in areas near to where the power is needed or at least a grid connection is possible.
Why this relies on location and sector, and must be in a populated area? Ground Lease providers (there are several, all institutions) prefer Top 30-100 markets. Renewable energy projects with strong power purchase agreements (PPAs) and creditworthy offtakers satisfy the lease provider’s main concern, which is certainty of revenue to pay the lease.
Security: no SBLC or other instrument, but instead we work with the land owner(s) to establish a ground lease, a sale lease-back structure.
Client doesn’t have to bring anything besides the land. No additional security required. If the land is not bought yet, the seller can still get paid through this structure.
Next Steps: If either a bank’s SBLC or cash deposit is unavailable for an otherwise strong project (close to zero commercial risk, execution risk, technology risk…), use our simple pre-application, and we will review and provide our assessment without cost or obligation. Questions?
