Safehold's Strategic Position in the Multifamily and Affordable Housing Sectors: Unlocking Undervalued Growth and Capital Efficiency

In a real estate cycle marked by shifting demand and regulatory tailwinds, Safehold Inc. (NYSE: SAFE) has carved out a unique niche in the multifamily and affordable housing sectors. By leveraging its pioneering ground lease model, the company has positioned itself as a capital-efficient engine of growth, unlocking value in an underserved market while maintaining a disciplined balance sheet. For investors seeking undervalued opportunities in a maturing real estate landscape, Safehold's strategic execution and financial metrics present a compelling case.

Strategic Expansion: From Niche to Core

Safehold's journey from a nascent ground lease innovator to a market leader is underscored by its aggressive expansion into multifamily and affordable housing. Since its 2017 IPO, the company has increased its multifamily exposure from 8% to 58% of its portfolio, now encompassing 88 ground leases and approximately 21,000 units. This shift aligns with broader demographic and economic trends: urbanization, rising housing costs, and a federal push for affordable housing. Safehold's model—separating land ownership from building ownership—enables developers to access long-term, low-cost capital, a critical advantage in a sector where traditional financing remains constrained.

The company's recent $220 million in Q2 2025 originations, including $123 million in ground leases and $97 million in leasehold loans, highlights its ability to scale. Notably, Safehold's “one-stop capital solutions” combine ground leases with short-term loan accelerators, streamlining the closing process for developers. This hybrid approach not only reduces transaction timelines but also enhances project feasibility, particularly in affordable housing, where compliance with Low-Income Housing Tax Credit (LIHTC) requirements adds complexity.

Capital Efficiency: A Fortress Balance Sheet

Safehold's financial discipline is a cornerstone of its appeal. With a gross profit margin of 98.9% and a current ratio of 40.73, the company's operational efficiency is exceptional. Its leverage ratio of 1.98x (total debt-to-equity) is conservative for a REIT, supported by $4.8 billion in fixed-rate debt with no corporate maturities until 2027. This structure insulates Safehold from near-term refinancing risks, a critical advantage in a rising interest rate environment.

The company's hedging strategy further bolsters its capital efficiency. By locking in $500 million in interest rate swaps and $250 million in treasury locks, Safehold has secured $31 million in hedging gains year-to-date. These measures, combined with a 4.2% effective interest rate on permanent debt, ensure that its cost of capital remains attractive relative to peers.

Undervalued Growth: Affordable Housing as a Catalyst

Safehold's foray into affordable housing is not just a strategic pivot—it's a growth engine. The company's ground leases remove the cost of land from capital stacks, improving LIHTC tiebreaker scores and enabling developers to secure higher permanent financing proceeds. For example, a 200-unit Santa Clara development, supported by The Pacific Companies and major banks, utilized Safehold's 99-year ground lease structure with fixed 2.0% rent increases and CPI resets. This model has already delivered over 1,600 affordable units in California alone, with more in the pipeline.

The federal LITECH program, which facilitates affordable housing development, has further amplified Safehold's reach. As the company expands into new geographies—Salt Lake City, Florida's Space Coast, and beyond—its 12-month market research and relationship-building playbook is yielding results. Executives anticipate a surge in closings in H2 2025 and 2026, driven by a backlog of letters of intent (LOIs) and a growing pipeline of affordable housing projects.

Valuation Metrics: A Discount to Intrinsic Value

Despite its robust fundamentals, Safehold trades at a significant discount to its intrinsic value. With a P/E ratio of 9.78x and a price-to-book ratio of 0.43x, the stock is undervalued relative to both its earnings power and asset base. The company's estimated unrealized capital appreciation (UCA) of $9.1 billion—representing potential value from ground lease maturities and property sales—further underscores this disconnect.

Safehold's economic yield on its portfolio, at 5.8%, climbs to 7.5% when factoring in inflation-linked adjustments and UCA. This yield, coupled with a 4.97% dividend yield, positions the stock as a high-conviction income and growth play. Analysts have set price targets ranging from $16 to $32, suggesting a potential 40% upside from its current $14.15 level.

Investment Thesis: Timing the Cycle

As the real estate cycle matures, Safehold's business model is uniquely positioned to thrive. The company's focus on long-term, low-cost capital aligns with the needs of developers navigating a fragmented and capital-constrained market. Meanwhile, its expansion into office and hospitality sectors—while secondary to multifamily—adds diversification without diluting its core strengths.

For investors, the key risks include regulatory shifts in affordable housing incentives and macroeconomic volatility. However, Safehold's conservative leverage, hedging strategies, and strong liquidity ($1.2 billion in cash and credit availability) mitigate these concerns.

Conclusion: A Buy for the Long-Term

Safehold's strategic positioning in the multifamily and affordable housing sectors, combined with its capital-efficient operations and undervalued stock, makes it a standout in the current real estate landscape. As the company scales its platform and converts its $62 million in unfunded ground lease commitments into closings, the path to unlocking its $9.1 billion in UCA becomes clearer. For investors with a 3–5 year horizon, Safehold offers a rare combination of defensive balance sheet strength and offensive growth potential—a compelling case in a maturing cycle.