How Safehold unlocks hidden value for commercial property owners by delivering more efficient, customer-focused ground lease solution
Throughout much of the history of commercial real estate, buying a property automatically meant buying both the building and the land underneath it.But common practice isn’t always best practice. Safehold, a publicly-traded company (NYSE: SAFE) designed to help owners unlock the value of the land beneath their buildings via a new, modernized ground lease structure has built a rapidly growing, multibillion-dollar business in just two years based on a crucial flaw in that thinking.
By recognizing the different investment propositions represented by owning a building as opposed to its land, Safehold has reinvented the ground lease, delivering a significant new value-enhancing tool to the industry. Bringing a customer service, relationship-focused orientation to ground leases, Safehold is making the separation of the building investment and the land investment a powerful new way to unlock sizable value for owners.
Sugarman notes that owning a building and owning land are “two very different investments, with different risk and return profiles, requiring different skill sets, and really should be owned by two different investor bases.”
“Many investors in commercial real estate have short term holding periods - five, 10, 15 years. But the land holding period is typically 99 years,” Sugarman says. “Building investors shoot for higher returns, looking for 15 percent-plus returns on their equity, but the land is looking for returns just over five percent. It doesn’t make sense to force investors to always buy these two investments together.”
“Every property investment is two investments – an investment in the higher return operating business - the building - where the leasing, managing, marketing, designing, constructing, buying and selling take place, and an investment in thelower-return passive asset - the land - which is a long term, low volatility, lower return investment”