Safehold Closes $45 Million Affordable Housing Ground Lease in Santa Cruz With Wells Fargo, Citi
Safehold Inc. (NYSE: SAFE) has closed a $45 million ground lease for the development of an affordable housing community in the Soquel area of Santa Cruz, California, the company announced June 23. The project, developed by The Pacific Companies, will deliver 256 units of Low-Income Housing Tax Credit housing by 2028, with Wells Fargo and Citi providing key layers of the capital stack.
Deal Structure and Capital Stack
The transaction involves Safehold serving as ground lessor — owning the underlying land while a separate leasehold interest finances and owns the improvements above — a structure the real estate investment trust has used across its growing affordable housing portfolio. The $45 million ground lease represents Safehold's contribution to the project's capital structure.
Wells Fargo and Citic Capital are providing both construction financing and tax credit equity for the development. Citi will also provide permanent financing upon project stabilization. The development is structured as a Low-Income Housing Tax Credit transaction, a federal program that incentivizes private investment in affordable rental housing.
The Pacific Companies, described by Safehold as a repeat customer, is serving as the project's developer.
Safehold Expands Affordable Housing Platform in Santa Cruz
Safehold said the transaction marks its second recent affordable housing ground lease in the Santa Cruz area. The company operates a dedicated affordable housing platform and has positioned its ground lease structure as a tool to address capital structure gaps in affordable development.
"This is a high-quality, large-scale community in a high-cost coastal submarket with significant unmet demand for Affordable Housing," said Steve Wylder, Safehold's Head of Investments. "We're excited to expand our relationship with The Pacific Companies and are pleased our ground lease capital could play a role in helping to deliver this project."
Wylder also pointed to current market conditions as a driver of demand for Safehold's structure. "We're positioning our capital as a tool to help move these projects forward," he said. "In the face of elevated rates and stubbornly high construction costs, our structure can help fill capital structure gaps and deliver much needed Affordable Housing."
Santa Cruz is described in the press release as a vibrant coastal community located along Monterey Bay with significant unmet demand for high-quality affordable housing.
Ground Leases as a Capital Stack Solution
Safehold's commentary on filling "capital structure gaps" reflects challenges facing ground-up affordable development in high-cost markets. By separating land ownership from the improvements, Safehold's ground lease model allows developers to remove land cost from the leasehold financing, which the company says can help reduce the loan basis and free up room in the capital stack for other sources.
Project Details and Timeline
The development will be located in the Soquel area of Santa Cruz, a coastal community situated along Monterey Bay. The project's specific address has not been publicly disclosed. Upon completion, the community will provide 256 affordable units, with delivery targeted for 2028.
Safehold, which is organized as a real estate investment trust, states it created the modern ground lease industry in 2017. The company's portfolio spans multifamily, affordable housing, office, industrial, hospitality, student housing, life science, and mixed-use properties. Additional information on Safehold's affordable housing platform is available at www.safeholdaffordablehousing.com.