2018 Annual Review

A New
Beginning,
A New Era

History of Innovation

Throughout our 25-year history, we have dedicated ourselves to building innovative businesses that have provided better structured, better priced capital to the real estate sector. Identifying these untapped market opportunities and successfully scaling them is the foundation of our firm.

  • A pioneer of the market for mezzanine capital in real estate
  • At the forefront of identifying the mispricing of net leases
  • Spearheaded new ways to bifurcate and capitalize an auto dealership real estate
  • Introduced first securitization backed by timber cash flows
  • iStar IPOs the next big innovation in commercial real estate capital (NYSE: SAFE)

Today, we are creating a new type of ground lease, a Safehold.

Why Ground Leases?

Ground leases separate the ownership of the building from the ownership of the land underneath the building. These two separate investments have very different risk and return profiles and require very different skills associated with managing them. By pulling them apart, it allows each investment to be priced more efficiently.

What is the Opportunity?

Be Better

By providing our customers with new, modern ground leases, we can lower their cost of capital, reducing maturity and interest rate risk, while at the same time increasing their returns.

Be First

Launched Safehold, the first and only company focused on evolving ground lease structures to make them customer-friendly and modernized for today’s real estate owners.

Be Big

Targeting $7 trillion of institutional commercial real estate in top U.S. markets, while operational efficiency and low variable costs allow the business to scale quickly.

“It’s a big market opportunity, and we have a better product — a fundamentally more logical way to own real estate.”

Why is This an Attractive Business?

AAA-Like Safety

Safehold™ ground leases typically comprise the senior-most 30% to 45% of the capital structure of a property, similar to the AAA tranche of a CMBS securitization, and the ground rent is covered 3x–5x by the net operating income of the building, consistent with AAA metrics.

Capital Appreciation

The building and the land all revert back to Safehold at the end of the ground lease. As we continue to scale the business and diversify across the top markets in the U.S., we will benefit from the anticipated appreciation in real estate values over the long term.

Growing Income Streams

A typical Safehold™ ground lease includes contractual annual rent increases that compound over the life of the lease, and often include periodic CPI-lookbacks for added inflation protection.

Portfolio Expansion

On top of the growing income streams, the portfolio has nearly tripled since its IPO (6/22/17). As growth accelerates, the diversity and scale of the portfolio will make it easier for investors to see the true underlying value.

A Powerful Combination

iStar’s Unique Positioning

Innovator

iStar’s unique skill sets and history of innovation enable us to unlock significant value in this misunderstood asset class.

Biggest Owner

iStar owns more than 65% of Safehold, which means we are the biggest beneficiary of Safehold’s success.

Investment Manager

As Safehold’s investment manager, iStar is poised to benefit as Safehold successfully scales.

One-Stop Shop

iStar can leverage its historical strength in finance and net lease to create one-stop capital solutions in combination with a Safehold™ ground lease.

Competitive Advantage

iStar can use Safehold’s more efficient structure to create proprietary investment opportunities to compete in the finance and net lease sectors.

Case Study:

515 22nd St. NW
Washington, D.C.

Closing Date

January 18, 2019

Customer Need

Customer seeking to acquire a well-located property in the Foggy Bottom neighborhood of Washington, D.C. with plans to convert from an office to a 153-unit multi-family building. Required a partner with flexibility to capitalize project throughout redevelopment stages.

Solution

Safehold provided ground lease capital while iStar provided a 1st mortgage leasehold loan as part of a new SAFE/STAR one-stop capital solution.

Result

Addressed complex customer need through one-of-a-kind capital structure. Customer received lower blended rate in comparison to other offers, more efficient capital, and the certainty provided by a quick, one-stop capital source.

2019 Goals

  • 1
    Aggressively scale Safehold
  • 2
    Capitalize on competitive strengths of iStar and Safehold
  • 3
    Reduce legacy portfolio to less than 15% of overall assets