EXCLUSIVE Safehold Makes It Possible To Invest In The Land Below Hotels, Apartments And Office Buildings

Safehold Inc SAFE is the only publicly traded ground lease company, wielding the only pure-play investment grade platform.

"Any piece of commercial real estate ... is literally just two components," Ian Selig, IR at Safehold, said Friday during a presentation at the "2022 FinTwit Conference" hosted by Benzinga and Lupton Capital.

"It's the land, and it's the building that sits on top of that land and in a ground lease structure, we separate those components."

Safehold owns the land beneath several commercial buildings. Another party leases that land to the building tenants for a long duration of time, typically 99 years.

The Key: "At the termination of the lease, at the end of that 99 years, not only does SAFE get its land back, it gets the building and all of its improvements back as well," Selig said.

Whenever somebody buys a property, they buy a building and they buy the land underneath, but those are very different investments, he said. The building is often the driver of returns in the short term, whereas the land acts as more of a long-term investment, he added.

Safehold allows a building owner to improve capital efficiency and reduce risk by buying the land beneath the building and entering into a ground lease, Selig explained.

For example, if a hotel property is for sale for $100 million, a prospective buyer could come to Safehold for a ground lease and reduce investment costs. The prospective buyer may end up paying $65 million for the building, while Safehold pays $35 million for the land and leases it to the building owner. 

"$65 million plus whatever equity you put in is a lot easier to handle than $100 million," Selig said.

Improving The Process: Safehold didn't invent ground leases, but it modernized the process to make it attractive in capital markets today. The company has removed provisions that previously skewed value toward the landowner and has made ground leases more appealing to all parties involved, Selig explained.

"Some of the biggest and best companies today are being built by rethinking how things have historically been done and delivering fundamentally better solutions," he said. 

See the full presentation below:

SAFE Price Action: Safehold shares have traded between $40.21 and $95.29 over a 52-week period.

The stock was up 0.47% at $43.16 at press time.

Photo: Pexels from Pixabay.