Jay Sugarman

In the year since the merger between Safehold and its largest shareholder, iStar, Jay Sugarman has seen how a marriage of convenience has helped the new Safehold better control one of commercial real estate’s most important, if least understood, niches: ground leases. 

“We wanted to accelerate the adoption of this modern ground lease for customers, but we also want to make it a new asset class for investors,” Sugarman said. “The merger will help accelerate that by simplifying corporate governance.” 

Ground leases — leases of the land commercial real estate property sits on — historically have been an investment for the select few entities that bought land in cities decades (even centuries) ago. Sugarman aimed to create new ground leases for building owners that could also serve as liquid assets for investors — so he turned the old ground lease into a modern capital tool, borrowing elements from the CMBS world, the capital markets system, and real estate ownership practices to create a novel investment class for sponsors buying, selling or refinancing properties. 

“We like to call it one of the great wealth creators in terms of asset classes: It’s compounding, tax-efficient, no fees, no promotions, really no operating expense responsibilities, and no capex responsibilities,” said Sugarman. “We think we’ve cracked the code on modernizing the ground lease.” 

Since Safehold went public six years ago, the firm’s portfolio has grown from $300 million to $6 billion. However, Sugarman noted that while it’s an attractive asset class for some investors, many don’t understand the ambiguous world of ground leases.  

Sugarman believes the formula is simple: The building is the short-term operating asset and the land is the long-term, lower-return asset, and thus both need to be capitalized differently. His goal is for Safehold to be the lowest-cost capital provider of the land so building owners can reap the benefits of that specific asset while managing their properties day to day. 

“We buy the land and lease it back to you for 99 years,” said Sugarman. “You as a building owner have a predictable cost for your land … so it’s almost permanent capital.”