Why Ground Leases Are Quietly Becoming the Go-To Capital Solution for Apartment Developers

Multifamily developers grappling with elevated equity requirements are increasingly turning to an alternative capital structure that could redefine how apartment projects get funded: the modern ground lease. Safehold, the publicly traded ground lease company, has positioned its product as a solution to the dual challenges of scarce equity and rising construction costs that have stalled projects across major U.S. metros. Rather than seeking out traditional ground-up development deals, Safehold provides capital by acquiring the land beneath a development site and leasing it back to the developer on a long-term basis—typically 99 years. This structure immediately reduces the developer's basis, freeing up capital for vertical construction and reducing the overall equity check required from institutional partners.

Key Details

Safehold's ground lease model works by separating the ownership of the land from the improvements. The developer retains full operational control of the property and benefits from appreciation, while Safehold collects a fixed ground rent over the lease term. Key elements of the structure include:

• Lease Term: 99 years, providing developers with long-term certainty comparable to fee ownership
• Capital Deployment: Safehold's ground lease reduces equity requirements and lowers the blended cost of capital
• Pricing: Ground lease rates are priced well inside equity yields and conventional debt costs, per Safehold
• Developer Control: The sponsor maintains complete control over operations, refinancing, and eventual disposition
• Property Types: The structure applies to both new construction developments and the recapitalization of existing stabilized assets

According to Commercial Observer, Safehold's approach has gained particular traction in high-barrier coastal markets where land costs represent a substantial portion of the overall project basis. By monetizing that land value upfront, developers can achieve leveraged returns that would otherwise be unattainable in the current rate environment.

Market Context

The ground lease resurgence arrives at an inflection point for multifamily finance. Traditional capital stacks—once dominated by agency debt, bank construction loans, and institutional equity—have been disrupted by the Federal Reserve's tightening cycle. That contraction in available capital has created an opening for alternative structures.

Safehold's ground lease effectively replaces a portion of the equity tier with lower-cost capital, compressing the blended cost of the stack and making pro formas pencil out where conventional financing falls short. For developers in markets like New York, San Francisco, and Los Angeles—where land acquisition represents a substantial share of total project costs—the savings are meaningful enough to resuscitate projects that were previously shelved.

The broader implications extend beyond individual deals. If ground leases become a standard component of the multifamily capital stack—alongside senior debt and sponsor equity—it could unlock a wave of development that the market desperately needs. Capital solutions that lower the barrier to entry for new construction are not just financial innovations—they are essential tools for addressing the housing supply crisis.

For CRE professionals, the takeaway is that deal structuring flexibility matters more than ever. Sponsors who understand and can deploy tools like ground leases will have a clear advantage in a market where capital remains constrained but demand for housing continues to grow.

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