Why Safety, Income & Growth Has Chosen To Focus on the Ground Lease

“Ground leases are a relatively big idea where the markets rewards investors who are efficient with their capital.”

Jay Sugarman

NEW YORK CITY–Safety, Income & Growth (SAFE) is carving out a niche for itself in the commercial real estate community with its focus on ground leases. A ground lease, of course generally represents ownership of the underlying land. The land is typically net leased on a long-term basis by the landlord to a tenant who owns and operates the property. During a typical ground lease contract, a landlord collects ground rent payments, including contractual escalations and/or percentage rent payments during the lease term. Once the lease has expired or the tenant defaults, the landlord continues to own the land. Ground leases are often extended throughout the lease term.

The reason SAFE is focusing on this piece of the CRE ecosystem, as CEO Jay Sugarman explains to GlobeSt.com, is that “ground leases generates low-risk returns with the potential for a considerable capital appreciation.”

“By utilizing a ground lease, our clients lower their capital in order to generate higher returns compared to traditional commercial real estate financing,” he says.

The main factors used to transact ground leases, according to Sugarman, include a “transaction size between $25 million to $500 million, a cap rate between 3.5% -5%, a ground lease to property value of 25%-40% and that is located in one of the top 25 markets nationwide. Properties typically include multifamily, office, industrial, hospitality and mixed use assets.”

Sugarman believe ground leases are on their way to becoming an important asset category for commercial real estate. “Ground leases are a relatively big idea where the markets rewards investors who are efficient with their capital,” he says. “ We are still educating our customers and investors and feel good about where we are in the marketplace.”

SAFE, which is taxed as a real estate investment trust (REIT), is managed by its largest shareholder, iStar Inc. iStar has generated over $35 billion of real estate transactional expertise over the past three decades.