Safehold Delivers Predictable, Low-Cost Capital to Move Affordable Housing Forward

Safehold created the modern ground lease to give commercial real estate owners a more efficient way to capitalize their properties. The company has applied that structure to one of the country’s most pressing needs: affordable housing. Yosefa Lunzer, Safehold’s general counsel, transactions, has been a driving force behind that expansion. Commercial Observer’s Partner Insights spoke with her about adapting the financial product to a sector with its own deep expertise and established history, and what it takes to earn trust deal by deal.

Commercial Observer: Safehold describes itself as the creator of the modern ground lease. What problem was the product designed to solve?

Yosefa Lunzer: Ground leases have been around for a long time, but the legacy versions came with real problems. Many included fair market value resets and variable rent, so no one could predict what the property would owe decades out. That made them hard to finance and hard to sell. Safehold’s ground lease structure lets every stakeholder model the rent payments for the full term. When you can model the costs, you can finance and trade the property, and the land becomes a source of capital instead of a liability. This thesis has proven true time and time again in Safehold’s expanding portfolio.

The term “ground lease” still makes some people wary. How do you handle that on a deal?

You can’t skip the education. On almost every transaction, someone at the table has had a bad experience with a legacy ground lease or has heard about one. So before we negotiate terms, we walk through how the structure works and how it compares with other sources of capital. I’d rather answer every question upfront than have concerns come up further down the road. 

How did Safehold’s work in affordable housing begin? Why does it fit the broader platform?

The same benefits we offer market-rate sponsors are even easier to understand for affordable developers. Every affordable project is a puzzle of tax credits, debt and public funding. High interest rates and construction costs have left gaps in a lot of capital stacks, and our ground lease is the perfect tool to help fill these gaps. The economics are simple. In a typical 4 percent tax credit deal, we provide a 99-year ground lease and fund both the land cost and additional proceeds towards project costs. The lease rate is well below conventional debt and grows at a fixed rate each year, with no fair-market resets.  The rent is included as an operating expense and, in the end, helps to drive more proceeds at a lower blended cost of capital.

What was unique about bringing the ground lease into affordable housing?

The affordable housing industry is built on decades of expertise. Many of the sponsors, lenders, investors and public agencies we work with have been committed to this sector for generations, while Safehold entered as a relatively new participant. That meant our first priority was to listen and learn.

My role has been to ensure that our ground lease structure works seamlessly for every participant in the capital stack. Tax credit investors, permanent lenders, bond issuers and housing agencies each have unique requirements, and the lease documents must accommodate all of them.

In practice, that comes down to two fundamental principles. First, every stakeholder must be able to model and underwrite the ground rent with certainty throughout the full lease term. Second, the ground lease cannot interfere with the ownership, financing or day-to-day operation of the property. The structure should support, not hinder, the broader objective of creating and preserving affordable housing.

We have refined our documents through years of collaboration and feedback from our partners on a deal-by-deal basis. As a result, our ground lease integrates naturally into affordable housing transactions, providing long-term stability and predictability without adding complexity to the financing, development or operation of these communities.

You work closely with sponsors, lenders, investors and government partners. How would you describe your approach?

Collaborative. A ground lease deal involves a lot of parties with different priorities, and in affordable housing that often includes public agencies. If you treat the process as adversarial, it slows down and everyone loses. If you treat it as a shared problem to solve, you get to the closing table much more smoothly and people want to work with you again. Ultimately, particularly in the affordable housing sector, all of the stakeholders remain focused on a common objective: expanding the supply of much-needed affordable housing. Our ground lease structure supports that mission by unlocking additional capital and enabling public subsidies and housing dollars to go significantly further than they otherwise could. 

The modern ground lease is still a relatively young product. How has it evolved?

It didn’t arrive fully formed. We started by studying how legacy ground leases worked and where they broke down. Since then, each deal has brought something new: a different asset type, a different lender requirement, or a different local regulation. We’ve refined our form lease, addendums and platform documents to handle those issues, so the structure works across a wide range of asset classes. The goal hasn’t changed. The ground lease should give the owner the flexibility to run the property while giving lenders and investors the protections they need. Affordable housing pushed that evolution forward in a meaningful way.

Where does the affordable housing program stand today?

To date, we’ve completed 28 affordable housing ground leases across over 4,800 units in California and Texas. Those numbers represent homes for people who need them, and that’s what makes the work meaningful to us.

What advice would you give lawyers or sponsors encountering a modern ground lease for the first time?

Come in with questions, not assumptions. The modern ground lease is different from what most people picture when they hear the term. Look at the actual terms and run the numbers. Most of the skepticism we see goes away once people understand how the structure works in practice.