What financing structures allow land acquisition using projected ground lease income?

When investors or developers plan to acquire land for long-term leasehold income (e.g., through a ground lease), certain financing structures enable them to raise capital based on projected rental cash flows—even before the tenant occupies the land. These financing models blend forward-looking revenue assurance with asset-based lending to reduce upfront capital burden and improve return metrics.

Below are the key financing structures commonly used in such scenarios:

1. Lease-Backed Term Loan (Loan Against Projected Lease)

• Structure:
  
  • A term loan is secured by the land title and anticipated lease agreement, subject to lease execution conditions.
    
• Lender Requirement:
  
  • Draft lease or executed MoU with terms (tenure, rent, escalation, lock-in)
    
  • Creditworthy tenant or binding Letter of Intent (LoI)
    
• Advantage:
  
  • Enables land acquisition or construction before the lease starts
    
  • Loans are typically disbursed in tranches linked to lease milestones.

2. Forward Lease Assignment Financing

• Structure:
  
  • Lender advances funds against the assignment of future lease receivables.
    
• Instruments Used:
  
  • Escrow account for rental inflow
    
  • Tripartite agreement between the lender, the lessor, and the tenant
    
• Purpose:
  
  • Financing structured around the present value of predictable lease cash flows
    
  • Especially useful for long-term (30–99 years) ground leases with fixed escalations

3. Construction Financing with Lease Pre-Commitment

• Structure:
  
  • A bank or NBFC provides acquisition and construction finance based on a pre-leased tenant agreement or a BTS commitment.
    
• Key Features:
  
  • Tenant must sign a pre-lease or BTS term sheet before loan disbursement.
    
  • The lease must commence upon project completion for repayment to begin.
    
• Benefit:
  
  • Helps bridge the capital gap during land purchase and initial development

4. Structured Debt with Rental Escrow and Security Enhancements

• Structure:
  
  • Debt is secured using a combination of:
    
    • Land mortgage
      
    • Rent assignment
      
    • Tenant guarantees or escrow agreements
      
• Security Layers:
  
  • DSRA (Debt Service Reserve Account)
    
  • Rent collection waterfall linked to EMI payments
    
• Suitable For:
  
  • Lease income models with delayed or phased tenant onboarding

5. Private Equity or HNI Co-Investment Model

• Structure:
  
  • The developer or acquirer brings in private investors to fund land acquisition in exchange for future lease income share or exit rights.
    
• Usage:
  
  • Ideal for speculative land aggregation with high ground lease potential
    
• Exit Route:
  
  • PE investors exit after lease stabilization through refinance or asset sale.