Safehold has spent the last decade modernising the ground lease strategy, which involves acquiring the land beneath a development to reduce costs for developers and occupants. More recently, the real estate investment trust (REIT) began to deploy this strategy to help affordable housing developers bridge increasingly persistent gaps in their capital stacks.
The company launched a dedicated affordable housing platform in 2025 and has since accelerated its activities, particularly in California. There, it has closed more than 25 ground leases for projects linked to federal Low-Income Housing Tax Credits (LIHTC).
Ground Lease as a Financing Instrument
Steve Wylder, Head of Investments, oversees the expansion of the strategy. Safehold's 99-year ground leases are designed to provide low-cost capital at a premium to the underlying land value. The company states that this can increase proceeds for 4-per cent LIHTC projects by 10 to 20 per cent. Safehold has executed 172 ground leases for owner-operators, public companies, and sovereign wealth funds.
Southern California has become one of the company's most active markets for affordable housing, with projects stretching from San Diego to Los Angeles and Ventura County. Concurrently, the Texas market has been entered, with the goal of expanding into the Southeast, Mid-Atlantic, and Midwest.
Challenges and Market Analysis
Wylder emphasised to Commercial Observer at the end of September that funding gaps in affordable housing persist. Safehold has financed just over USD 7 billion in ground lease capital nationwide and is active across various asset classes in the top 30 metropolitan areas. The basic principle is to act as the third-party ground lessor with a 99-year term and very low capital costs. The net effect on the capital structures of these 4-per cent LIHTC transactions is that developers can typically achieve a 10 to 20 per cent increase in permanent proceeds at significantly lower overall capital costs.
The persistent funding gaps result from increased interest rates and rising costs, making it difficult for developers to realise their projects. The market requires creativity to close these gaps and implement construction projects. Although the structure is still relatively new in the affordable housing sector, Wylder is encouraged by developer feedback and the nearly 30 transactions closed in less than three years.
Some introduction of the ground lease structure is required for bond issuers, municipalities, lenders, or tax credit investors. The positive reception and the establishment of recurring relationships with developers underscore the need for this capital structure. Safehold plans further expansion, particularly in Texas, where the first three LIHTC transactions were closed this year, as well as in the Southeast, Mid-Atlantic, and parts of the Midwest.
