Safehold (NYSE: SAFE) is a pioneering company in the modern ground lease industry, offering an innovative financing model to address the high costs of land acquisition in real estate development. Its structure provides alternative, low-cost capital to multifamily developers, especially for affordable housing projects, including those utilizing LIHTCs. 

How Safehold Works 

1. Ground Lease Structure:   

  • Term: 99-year ground lease agreements; 
  • Rent: Payments are typically set at a 5.25 to 5.50 percent lease rate, with annual increases of two percent and CPI adjustments every ten years (capped at 3.5 percent); and   
  • Proceeds: Beyond land cost, additional funds may be provided as tenant improvement allowances, enabling project development. 

2. Advantages: 

  • Removes land cost from project budgets, freeing funds for other uses; 
  • Increases overall financing proceeds by ten to 20 percent by combining ground lease funds with permanent loans; and 
  • Keeps rental income stable by capping lease rates and offering predictable annual adjustments.   

3. Key Features:   

  • Ground rent is treated as an operating expense, which helps in optimizing the project’s net operating income (NOI); and 
  • No impact on LIHTC compliance metrics, such as eligible basis or partnership income, which is critical for affordable housing developers.   

Opportunities and Benefits for Affordable Housing 

1. Enhanced Financing: 

  • By removing upfront land acquisition costs, Safehold enables developers to secure higher funding levels without additional regulatory hurdles or subsidies; and   
  • Increases access to capital, especially critical for affordable housing developments, where budgets are tight. 

2. Cost Efficiency:   

  • Safehold’s model offers a lower blended cost of capital compared to traditional financing. This reduces the overall financial burden, allowing developers to invest more in quality construction or affordability initiatives. 

3. Support for Affordable Multifamily Housing: 

  • Safehold is expanding its portfolio in affordable housing, including LIHTC projects, thus contributing to the preservation and creation of rental units accessible to low- and middle-income households. 

Overall Value 
Safehold’s ground lease model offers a creative, efficient pathway for developers to overcome financial barriers in the high-cost real estate market. It aligns with public policy goals by supporting affordable housing, providing an interim solution for financing gaps and ensuring long-term project viability. This makes Safehold a valuable partner for multifamily developers aiming to expand affordable housing portfolios.