Safehold Inc. has closed a $45 million ground lease for the development of an affordable housing community in the Soquel area of Santa Cruz, California. The transaction addresses significant unmet demand for high-quality housing in the high-cost coastal submarket. The project will be developed by The Pacific Companies, a repeat customer of Safehold.

Project Details

The Low-Income Housing Tax Credit development is scheduled for delivery in 2028. It will provide a total of 256 units upon completion. This marks Safehold's second recent affordable housing ground lease in the Santa Cruz area, reflecting the firm's broader strategy to expand its focus on the affordable sector.

Financing Structure

Wells Fargo and Citi Community Capital provided both construction financing and tax credit equity for the project. Citi also provided permanent financing. The capital structure aims to fill gaps created by elevated interest rates and high construction costs.

Strategic Expansion

Steve Wylder, Safehold's Head of Investments, emphasized the quality and scale of the community. He stated that the firm is positioning its capital to help move projects forward despite challenging market conditions. Safehold continues to leverage its ground lease model to support the delivery of affordable housing.

Safehold Inc. has formed a joint venture with a Brookfield affiliate for a diversified ground lease portfolio, a move aimed at de-leveraging its balance sheet and increasing liquidity. The assets contributed by Safehold are diversified across the United States and generate current annualized cash ground rent of approximately $14 million. Brookfield purchased a non-controlling 49% interest in the venture at a gross valuation of approximately $348 million.

Safehold will retain day-to-day control and management of the assets, with the venture expected to be consolidated on its financial statements. Brookfield's investment will be recognized as an equity non-controlling interest. Safehold holds a series of call options beginning after year 7 to repurchase Brookfield's interest. The company plans to use the net proceeds for debt repayment and general corporate purposes.

Financial Details of the Transaction

The joint venture structure allows Safehold to access capital priced below its current equity cost of capital while retaining future flexibility to repurchase the venture assets. The following table outlines the key financial metrics of the agreement:

Strategic Benefits and Management Commentary

Brett Asnas, Chief Financial Officer of Safehold, highlighted the strategic benefits of the transaction. "This joint venture creates several important benefits for Safehold, de-leveraging the balance sheet with capital priced below our current equity cost of capital, increasing liquidity and capacity to pursue new ground lease investments, demonstrating institutional demand in the asset class and retaining future flexibility to repurchase the venture assets," said Asnas.

Ben Brown, Co-President of Real Estate at Brookfield, expressed optimism about the partnership. "We are pleased to partner with Safehold on this transaction, which provides access to a diversified portfolio of high-quality ground leases in major U.S. markets," said Brown. "We continue to see compelling opportunities to deploy flexible capital across high-quality real estate investment opportunities supported by durable real estate fundamentals and stable cash flows while tailoring capital solutions to support our partners' balance sheet objectives."

Eastdil Secured, L.L.C. and BofA Securities acted as advisors to Safehold for the transaction.