Newly internalized Safehold unlocking embedded value for building owners

Newly internalized Safehold unlocking embedded value for building owners

4 min read
Aerial of Philadelphia

Building owners and developers are increasingly turning to ground leases to efficiently develop and operate their assets, while mitigating risks posed by fluctuating inflation and interest rates.

Safehold is committed to helping asset owners generate the most value from their properties, even during times of economic uncertainty. In March 2023, the company announced a merger with iStar.

“We’re opening a new chapter in our company’s history,” Safehold Chairman & CEO Jay Sugarman said. “This deal enables an internalization of all of our expertise, while opening us up to potentially new categories of institutional capital, which can ultimately create lower capital costs for customers. It further strengthens our position as the preeminent ground lease company and the creator and leader of the modern ground lease industry.”

Bisnow sat down with Sugarman to discuss the industry’s adoption of modern ground leases, the impact of scaling and how the merger will help provide building owners with greater access to efficient capital.

Bisnow: In the real estate world, how has the perception of ground leases evolved since the company was founded?

Sugarman: The high number of transactions in almost every major city and property type has dramatically increased market familiarity and interest in ground leases. Just as the net lease market became a powerful tool for corporations to maximize value, ground leases are now doing that for commercial real estate.

Historic ground lease structures were very inefficient and usually a bad deal for building owners. To that end, we wanted to create a ground lease that brought value for owners and lowered their cost of capital as well as their risk. The old ground leases had all sorts of out-of-date provisions and vague structures. We standardized the structure and made it more accepted by lenders and buyers, bringing the industry into the modern age with a ground lease that fits seamlessly within today’s capital markets.

Safehold’s portfolio exceeded $6B in 2022. What does this milestone mean in the grand scheme of Safehold’s mission and where it’s headed?

Our company is the only scaled pure-play, publicly traded ground lease company. In 2017, we went public with an approximately $300M ground lease portfolio and we’ve grown almost twenty-fold since then. 

We knew scale was going to be important, as it would allow us to drive down our cost of capital, making our ground leases an attractive source of capital for customers. At our scale, our customers of all sizes can take advantage of the many benefits of modern ground leases. 

We’ve worked with over 50 different lenders who finance the buildings on top of our land, so we know that modern ground leasing is no longer a new concept or something that hasn’t been fully vetted by the industry. More property owners now see it as a powerful tool to maximize the value of what they do well, which is building, operating and managing high-quality buildings in and around the top 30 cities in the country.

What is the significance of Safehold’s merger with iStar? What does it mean to Safehold as well as customers?

The merger simplifies our company. We believe the merger should help us scale faster and make it easier for us to bring down capital costs, which will make the modern ground lease even more impactful for owners, buyers and builders who access this very attractive capital.

What challenges are your clients solving these days and how does Safehold help?

Customers need the most efficient capital they can access today, given the challenges caused by higher interest rates and macro volatility. We can help maximize the value of existing properties by using a ground lease to create the optimal capital structure as well as provide lower-cost capital for people who are developing new properties. In addition, when an owner is selling or buying a property, a ground lease can increase the price for the sellers and the pro forma returns for the buyers. 

It all comes back to this idea that a modern Safehold ground lease can materially enhance the value of commercial property ownership, a radical change from many old ground leases, which negatively impacted value.

What does the future of ground leasing look like?

The net lease business has grown into a multitrillion-dollar business. We think the same economic logic applies to ground leases and we’re excited to be the leader in what should be a large and growing business for decades to come. 

Connect with Safehold

East Coast

Tim Doherty

Chief Investment Officer

West Coast​

Steve Wylder​


Ryan Howard

Stay in the loop

Subscribe to have the latest updates, insights and more delivered straight to your inbox.