Ground Leases for CAP funding security

In3 Capital’s newest option for clients to fund their project features 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.

The concept is not new, but applying it CAP’s innovative funding structure provides an attractive alternative for satisfying the Security requirement, without giving up ownership of the project’s site improvements, or anything else but the land during the lease period. Clients own any buildings and related improvements. Know more.

What projects can qualify?

Check for basic fit (3 of 4 cornerstones — Size, Sector, and Stage), then return to this page for special requirements to see if you qualify for using a Ground/Infrastructure Lease as In3 CAP 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, with the exact equity split subject to negotiation and mutual approval. 

As of Spring 2025, it helps if your project’s site is on land listed toward the top of the US or Canada’s most populous cities… US cities by population (Wikipedia) or World Population, and you otherwise do not have access to either a Standby LC (SbLC) or cash deposit.

In general, institutional lessors expect projects with rated risk and few to zero areas that would cause hesitation that the project will perform on par or better than the financial projections, so they are assured of receiving lease payments over time. We work with groups that arrange this 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, ideally insurable (or with insurance rates already determined), and the identified site in a location where we can operate. When the project site is near a major US or Canadian city, whether or not the land is owned (although it helps when the site is secured), we are most likely to gain support for the Ground Lease Financing. Note that we are expanding to other markets as of Spring 2025 (starting with the UK), so projects outside N. America will be evaluated on a case-by-case basis. In such locations, involving an insurance company would be preferable.
• In3’s project finance team reviews your project’s proposal to determine 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 (typically in the range of 25-35% of the project’s budget) for 100% CAP funding on your behalf.

This approach has become increasingly common given the current limitations of traditional real estate debt markets and the spiraling cost of construction loans (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) and Ground & Infrastructure Lease Financing (GILF) have both served as a successful source of financing for landowners and project developers for decades, now being applied to diverse project sectors, including many of In3’s focus sectors.

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?