Safety, Income & Growth Inc. (NYSE: SAFE) is the first publically traded company focused on ground leases. Ground leases provide principal safety, growing inflation protected income and the opportunity for significant capital appreciation. We seek to become the industry leader in ground leases by bringing an innovative and institutional approach to the market. Our investment manager and largest shareholder, iStar Inc. (NYSE: STAR), brings more than two decades and over $35 billion of real estate transactional expertise. With eight offices throughout the U.S. and nearly 200 professionals, iStar and its resources are aligned and motivated for Safety, Income & Growth’s success.

Ground Leases

What is a Ground Lease?

A ground lease represents ownership of the land underlying a commercial real estate property. The land is leased by a landlord on a long term basis to a tenant that owns and operates the building. The tenant is responsible for all operating expenses including taxes, maintenance and insurance while paying ground rent to the landlord. At lease expiration, or upon a tenant default, the land and all buildings and improvements revert to the landlord for no additional consideration.

What is a Ground Lease Image

Understanding a Ground lease:

Any commercial real estate property can be broken down into two parts: the land and the building on top of the land. A ground lease is a structure in which one person owns the land (landlord) underlying a commercial real estate building and has entered into a lease to allow another person (tenant) to use the land for the purpose of owning and operating a building on the land. The tenant then pays rent to the landlord. Ground leases are passive, triple net investments, with the tenant responsible for all of the operations of the building including maintenance, insurance, taxes and capital expenditures. At the end of the lease, ownership of the building along with the land typically reverts back to the landlord for no additional consideration.

A ground lease is long duration lease, typically 50 to 99 years, to a tenant who owns and operates a building on the property. The ground lease defines who owns the land and who owns the building and improvements on the property. Because they have the long-term rights to use the land and keep all of the profits from the building’s operations, the tenant is incentivized (and typically required) to maintain and improve the property during the lease term.

A ground lease lets the landlord retain top priority of claims on the property. Even if the tenant has a mortgage on the building, that lender may not take ownership of the land if the tenant’s loan goes unpaid.

How Ground Leases Benefit Our Customers:

Ground leases provide commercial real estate investors, developers and owners a more efficient way to own their properties. By utilizing a ground lease, our customers can raise more capital and generate higher returns on their equity versus the traditional ownership of real estate. In effect, ground leases replace the need for expensive mezzanine capital or even partner equity capital. In addition, a SAFE ground lease is structured to work with today’s modern commercial real estate finance markets by ensuring that the leasehold remains easy for our customers to finance and sell.

Investment Attributes:


Ground leases are one of the safest ways to invest in commercial real estate, since they occupy a senior part of the capital structure. In addition, our ground lease rent is senior in terms of the payment priority and well covered by the income of the property.

Description Image

Additionally, we seek to invest in ground leases in which there is a significant amount of capital invested on top of the land such that our ground lease investment generally represents 30% - 45% of the Combined Property Value. By doing so, in the event of a tenant default or at lease expiration, it is likely that we will recover all of our initial investment and possibly amounts with significant excess.

Description Image

Growing Income

Description ImageIn addition to the safety afforded by ground leases, our ground lease investments provide a secure and growing cash flow stream. Imbedded in our ground leases, there are contractual rent escalators that compound over the duration of the lease typically resulting in meaningful income growth and the opportunity for the value of our ground lease investments to increase.

Comparing ground lease investments to other fixed income or equity investments with similar risk profiles, we believe that ground leases offer the investor the opportunity to potentially realize superior risk adjusted returns.

Capital Appreciation – Value Bank

Description ImageAt the expiration (or default) of our ground leases, the land and all buildings and improvements typically revert back to us for no additional consideration. When we acquire or create a ground lease, our exposure to the Combined Property Value is normally between 30% - 45%, with the tenant investing 55%-70% which is subordinate (junior) to our position. We refer to the difference of the Combined Property Value and our historical ground purchase cost at any point in time as the “Value Bank”.

There have been numerous studies showing a strong correlation between inflation and commercial real estate values over time. Because of the reversion of the building and improvements at lease expiration, the Value Bank may grow significantly to the benefit of the investor in the ground lease.

CBRE has conducted independent appraisals of our portfolio and will continue to do so on an annual basis. We will include these appraisals in our quarterly earnings reports in order to provide the investment community transparency of the price of Value Bank as well as the Combined Property Value (CPV) of the entire portfolio.

Typical Ground Lease Structure

Lease Term Base term up to 99 years
Rent Escalators Fixed bumps, CPI-based increases, revenue participation
Property Expenses No Landlord obligations
Capital Expenditures No Landlord obligations
Tenant Repair and Maintenance Tenant obligated to maintain the underlying property in the same condition as it was as the start of the lease
Remedies Upon Tenant Default Landlord (SAFE) entitled to terminate the lease, regain control of the land and take ownership of the improvements
Reversion Right at Lease Expiration Control of the land and ownership of the buildings and improvements on the land revert to Landlord (SAFE) for no consideration

Market Opportunity:

The potential ground lease market opportunity is significant as SAFE is seeking to reinvent how ground leases are utilized in today’s commercial real estate market. While the evolution of real estate finance has become more sophisticated through the years, ground lease investment strategies have remained virtually unchanged with no institutional platforms dedicated to innovation. SAFE’s custom tailored ground leases are a more efficient way for real estate owners and developers to capitalize their projects. A modern, SAFE ground lease can be part of the capital structure of almost any property within the $7 trillion+ commercial real estate industry and ultimately should become mainstream in the commercial real estate market.

The Bottom Line:

Safety, Income & Growth is a unique investment opportunity to participate in ground lease investments that provides attractive risk adjusted returns, growing inflation protected income flows and imbedded capital appreciation from Value Bank. Our manager and largest shareholder iStar Inc., brings the resources and expertise necessary to support SAFE as the preeminent ground lease company.