Money & Finance › Commercial real estate lending › Commercial real estate loans: how income property is financed
Other ways to finance a building: seller notes, leasebacks, PACE
· Concept
Fact, law or dataA rule, statute, definition or measured number.
Ways to finance or pull cash from a building without a standard mortgage: seller notes, sale-leasebacks, ground leases, CTL loans and C-PACE.
See it on the Money & Finance map →How it works
Seller financing: the seller lends part of the price, often for 5–10 years, and can spread its capital-gains tax as an installment sale. Sale-leaseback: an owner-occupier sells the building and signs a long net lease, freeing up to its full value. Ground lease: sell the land, keep the building, pay ground rent. CTL financing: a loan sized to a strong tenant's long lease. C-PACE: energy, seismic or EV upgrades repaid through a property-tax assessment over 20–30 years. Assuming a seller's low-rate loan is another route.
Why it matters
When banks are tight or rates high, these tools can close a deal or raise cash, but each gives something up: future appreciation, control, lien priority or flexibility.
Facts, rules and data
IRC Section 453 on installment sales, state PACE laws (California's since 2008), net-lease and ground-lease REIT filings such as Safehold's, and county assessment records.
Debates and risks
Some lenders argue C-PACE's tax lien unfairly jumps ahead of existing mortgages; supporters reply that required lender consent solves that.
Inside this (5)
Connections (2)
▸Other ways to finance a building: seller notes, leasebacks, PACE offer alternatives to Commercial real estate loans: how income property is financedFact, law or data
The connection
When a bank loan is too small, too costly or unavailable, these tools fill the gap. A seller note can replace a second loan or the whole loan; a CTL loan can lend more than a bank on a strong tenant's lease; C-PACE can replace part of a construction or upgrade loan at a long fixed rate.
When and why
Used most when credit is tight, as in 2009–11 and 2023–25, and by owners seeking long fixed money for specific upgrades.
How we know
Recorded seller deeds of trust, county C-PACE assessment records, and net-lease and CTL deal reports.
Debates and risks
Seller notes and C-PACE liens can complicate a later refinance, because the new senior lender must consent or accept their priority.
▸Other ways to finance a building: seller notes, leasebacks, PACE unlock equity in Real estate as an investmentFact, law or data
The connection
Real estate equity is usually locked up until a sale or refinance. A sale-leaseback turns an owner-occupied building into cash, up to its full value; selling the land under a ground lease raises money while keeping the building; seller financing lets an owner sell without a bank and spread the tax.
When and why
Common among companies that own their facilities and among investors; Safehold, a listed REIT formed in 2017, made modern ground leases a widely used product.
How we know
Public sale-leaseback and ground-lease deals in REIT filings, and IRC Section 453 on installment sales.
Debates and risks
Whether selling the land under a building creates value or just adds a costly, rising rent obligation is debated among owners and lenders.