Funding Construction With a Ground Lease: Close With Less Cash Equity

The equity is the bottleneck. The land is the equity.

25–30%

Cash equity construction lenders now require

30–40%

Of project cost typically sitting in the land

~½

How much the cash equity check can shrink

Banks came back to construction lending — at 70–75% of cost instead of 80–85%, which means the sponsor's problem moved from debt to equity. A ground lease closes that gap with the asset you already control: we buy the land at the construction closing, priced off the finished project's stabilized income, and the cash goes straight into the stack.

The structure

How land money enters a construction closing.

Step	How it works
1. The land sells at as-complete value	Not at raw-dirt comps. Ground rent is sized off the finished project's stabilized NOI (covered 3–4x), capitalized at a ground-lease rate — so the land contributes at the highest valuation lens in the deal.
2. The construction loan shrinks	The lender sizes off the leasehold basis — a smaller loan on a smaller basis. Leasehold construction lending is standard practice: the lease carries the full lender suite (notice and cure, recognition agreement, new-lease rights).
3. The cash equity check shrinks	Land proceeds count as capital in the deal. On typical numbers — land at 30–40% of cost, equity requirement at 25–30% — monetizing the land can cut the sponsor's cash check roughly in half.
4. The upside stays home	No JV partner, no promote given away, no dilution. Ground rent is a fixed, deductible operating cost; everything above it belongs to the sponsor.

Works both ways: the sponsor who already owns the site frees the equity trapped in it; the buyer acquiring a site closes land-light from day one. Either way the lease is drafted for the construction lender before the construction lender ever sees it.

Questions, answered

FAQ.

Can I get a construction loan on leased land?

Yes — leasehold construction lending is well-established. Lenders require a financeable ground lease: fixed rent with no market resets, notice and cure rights, a recognition agreement, and new-lease protections. Ours is drafted to those standards before the lender ever sees it.

How much equity does a ground lease replace?

The land is typically 30-40% of total project cost when priced off the finished project's income. With construction lenders requiring 25-30% cash equity, monetizing the land often cuts the sponsor's cash check roughly in half.

Does the ground rent burden the project during construction?

Rent is sized off stabilized income with 3-4x coverage at completion, and the structure can accommodate the construction period. The carry is a known, fixed line in the budget from day one, unlike equity returns that compound.

Why not just raise more preferred equity instead?

Preferred equity prices at double-digit rates and usually takes control rights and a piece of the upside. Land capital is non-amortizing, fixed in cost, takes no promote and no control, and never matures.

For 1031 investors

Every ground lease we write creates two things you can buy.

The land, on a 99-year lease: nothing to manage, senior to the building’s lender, low yield because the buyer is buying the right to not pay the tax. The building above it: higher yield, paid monthly, depreciable. Both are replacement property. Both close on a date we control, which is the part that matters on day 140.

1031 Solutions

Working with an intermediary? The standby sheet for line 3 of the identification form.

Get your number

Price the land layer before you raise the pref.

Send the site, the budget, and the stabilized pro forma — an indicative land value and the implied equity relief come back fast. Fee positions under $15 million are our lane.