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DATE
Wednesday, November 5, 2025 at 5 p.m. ET
CALL PARTICIPANTS
Chief Executive Officer — Jay Sugarman
Chief Financial Officer — Brett Asnas
President and Chief Investment Officer — Tim Dougherty
Head of Investor Relations — Pearse Hoffmann
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RISKS
CEO Sugarman said the company has initiated litigation and lease termination against the Park Hotel master lease tenant for all five hotels, citing breached covenants and standards; he stated, "we can't provide assurance that we will prevail in litigation that the future financial impacts will be positive."
Portfolio rent coverage declined slightly quarter over quarter, rounding down to 3.4 times from 3.5 times previously.
TAKEAWAYS
New Originations -- Four multifamily ground leases originated for $42 million, all within the affordable housing subsegment, with a weighted average economic yield of 7.3% and located in Los Angeles and San Diego.
Post-Quarter Originations -- An additional four multifamily ground leases totaling $34 million originated in the fourth quarter to date, also in the affordable housing subsegment and West Coast markets.
Customer Mix -- Six of the eight recent transactions were with a new customer; two were with a repeat customer now totaling seven transactions.
LOIs Signed -- Additional letters of intent have been secured with both customers for deals expected to close by year-end and into 2026.
Portfolio Size -- Total portfolio reached $7 billion in value at quarter end, with unrealized capital appreciation (UCA) estimated at $9.1 billion.
Portfolio Metrics -- Ground Lease-to-Value (GLTV) was 52%, and rent coverage stood at 3.4 times, both measured at quarter end.
Liquidity -- Liquidity at quarter end was approximately $1.1 billion, which is further supported by available capacity in joint ventures.
Quarterly Fundings -- $58 million funded in the quarter, including $33 million on new originations at a 7.4% economic yield, $15 million on preexisting commitments at a 7.5% yield, and $10 million in leasehold loans at an approximate rate of SOFR plus 499 basis points.
Asset Count -- Ground lease portfolio comprised 155 assets, including 92 multifamily properties, totaling approximately 37 million square feet.
Q3 Results -- Revenue was $96.2 million, net income was $29.3 million, and earnings per share were $0.41.
EPS Growth -- Excluding a prior-year $6.8 million noncash provision, earnings per share increased by $0.04 or approximately 12%, primarily from new investment activity.
Yield Metrics -- GAAP portfolio cash yield was 3.8%, annualized yield was 5.4%, and economic yield was 5.9%; 81% of leases include periodic CPI lookbacks.
Inflation-Adjusted Yield -- Inflation adjustment at a 2.25% rate raises the economic yield to 6%, and including unrealized capital appreciation, it becomes 7.5% (attributable to Safehold's 84% Carrot interest at a $2 billion valuation).
Debt Structure -- Total debt was $4.8 billion, with $2.2 billion in unsecured notes, $1.5 billion non-recourse secured debt, $881 million drawn on the revolver, and $270 million in joint venture ground lease debt (pro rata share).
Debt Maturity -- Weighted average debt maturity is approximately nineteen years, with no maturities due until 2027.
Hedging and Rates -- $500 million of revolver debt swapped to fixed SOFR at 3% through April 2028, generating approximately $1.7 million in quarterly cash interest savings.
Average Debt Costs -- Effective interest rate on permanent debt was 4.2%, with a 3.8% cash interest rate for the portfolio's permanent debt.
Credit Ratings -- Moody's rating is A3 stable, Fitch rating is A minus stable, and S&P rating is BBB plus positive outlook.
Affordable Housing Exposure -- Affordable housing represents 41% of gross book value.
Transaction Pipeline -- Over 15 deals under letter of intent totaling over $300 million expected to close in coming quarters, spanning both affordable and conventional multifamily.
SUMMARY
Safehold (SAFE 7.09%) emphasized expansion within the affordable housing segment, originating eight multifamily ground leases in California across the third and fourth quarters to date, with a significant portion conducted with new customers. The company reported $7 billion total portfolio value and maintained stable GLTV and liquidity levels, with 41% of multifamily exposure dedicated to affordable assets. Management described a well-diversified transaction pipeline exceeding $300 million under LOI, with momentum in both affordable and conventional deals. Safehold also detailed active litigation regarding the Park Hotel master lease, covering five hotels and presenting unresolved legal and financial uncertainty.
CEO Sugarman confirmed the master lease litigation applies to all five Park Hotel properties and is not limited to rent payment issues, instead centering on maintenance standards.
Management stated that larger transaction sizes are present in the pipeline and expects near-term closings to reflect a broader mix of asset classes outside the affordable segment.
Discussion on deal flow attributed longer closing timeframes primarily to development deals, especially in affordable housing, with nothing abnormal in market conditions indicated by management.
Safehold's hedging program yielded recognized savings and shows additional unrealized gains on treasury locks, not currently impacting the income statement.
Management underscored regulatory friction as a drag on affordable housing expansion and suggested future growth in larger states outside California, specifically referencing the Sunbelt and coastal regions.
INDUSTRY GLOSSARY
Ground Lease: A long-term lease agreement in which a property owner leases land to a tenant, who typically develops and operates improvements on the land during the lease term.
GLTV (Ground Lease-to-Value): The ratio of the ground lease position relative to the overall appraised value of the real estate asset, used for portfolio risk monitoring.
UCA (Unrealized Capital Appreciation): The estimated market value increase of portfolio assets that is not yet realized through sale or other monetization.
LOI (Letter of Intent): A formal, non-binding agreement indicating the preliminary terms under which parties intend to transact, pending final documentation.
Rent Coverage: The ratio of underlying property operating income to ground rent expense, used as a key risk metric.
SOFR: The Secured Overnight Financing Rate, a benchmark interest rate for dollar-denominated derivatives and loans.
Master Lease: A single lease agreement covering multiple properties between a landlord and a tenant.
Full Conference Call Transcript
Thanks, Pearse, and thanks to all of you for joining us today. We saw steady activity in our ground lease business in the third quarter.
Brett Asnas: With the recent decline in rates and a somewhat less steep yield curve helping to provide a more constructive backdrop. This was offset by deals needing longer time frames to close, and as a result, we expect more will likely close in the fourth quarter and first quarter of next year. The drop in rates has also helped boost the NAV of the existing portfolio and drive more activity in real estate markets more generally. In terms of sectors, our modern ground lease continues to help customers trying to meet affordable housing needs in heavily populated markets throughout the country.
And while deal sizes are smaller, we like the repeat customer dynamics we are seeing in this area and we are investing resources accordingly. Giving customers products that enable them to move quickly and adjust to market conditions remains a focus. And we will continue to innovate with ways to provide speed, certainty, and flexibility around our core ground lease solution. One-stop capital solutions, custom pricing solutions, and other enhancements will continue to expand the ground lease market for new and existing relationships. It's important that we find ways to generate attractive asset-level returns for us while also meeting our customers' evolving needs. Alright. Let's turn it over to Brett to review the quarter. Brett?
Tim Dougherty: Thank you, Jay, and good afternoon, everyone. Let's begin on slide two.
Brett Asnas: During the third quarter, we originated four multifamily ground leases for $42 million. In the fourth quarter to date, we've originated an additional four multifamily ground leases for $34 million. These combined eight assets are all within our affordable housing subsegment, and located in the Los Angeles and San Diego markets. With credit metrics in line with portfolio targets, and a weighted average economic yield of 7.3%. Six of these transactions were with a new customer added to our program. While the other two were with an existing customer who has now originated a total of seven transactions with us. Since inception. We have additional LOIs signed with both customers for deals expected to close through year-end, and into 2026.
We're pleased to see growing product adoption and repeat business in this sector, as we expect it to be a meaningful growth channel for Safehold. At quarter end, the total portfolio was $7 billion and UCA was estimated at $9.1 billion. GLTV was 52%, and rent coverage was 3.4 times. We ended the quarter with approximately $1.1 billion of liquidity which is further supported by the potential available capacity in our joint venture. Slide three provides a snapshot of our portfolio growth.
In the third quarter, we funded a total of $58 million including $33 million of ground lease fundings on new originations that have a 7.4% economic yield, $15 million of ground lease fundings on preexisting commitments, that have a 7.5% economic yield, and $10 million of existing leasehold loans that earn interest at an approximate rate of SOFR plus 499 basis points. At quarter end, our ground lease portfolio had 155 assets, including 92 multifamily properties. And has grown 21 times by both book value and estimated unrealized capital appreciation since our IPO.
In total, the unrealized capital appreciation portfolio is comprised of approximately 37 million square feet of institutional quality commercial real estate, consisting of approximately 21,500 multifamily units, 12.6 million square feet of office, over 5,000 hotel keys, and 2 million square feet of life science and other property types. Continuing on slide four, let me detail our quarterly earnings results. For the third quarter, revenue was $96.2 million, net income was $29.3 million, and earnings per share was $0.41. The increase in GAAP earnings year over year was primarily due to a nonrecurring $6.8 million noncash general provision taken one year ago.
Excluding nonrecurring items, Q3 earnings per share increased $0.04 year over year or approximately 12% primarily driven by new investment activity. On slide five, we detail our portfolio's yields. For GAAP earnings, the portfolio currently earns a 3.8% cash yield. Up slightly from last quarter due to organic growth, higher yields on new investments, and a fair market value reset on one of our ground leases. Our annualized yield earns 5.4% and includes noncash adjustments within rent, depreciation, and amortization, which is primarily from accounting methodology on IPO assets, but excludes all future contractual variable rent. Such as fair market value resets, percentage rent, or CPI-based escalators. Which are all significant economic drivers.
On an economic basis, the portfolio generates a 5.9% economic yield, which is an IRR-based calculation that conforms with how we've underwritten these investments. This economic yield has additional upside, including periodic CPI lookbacks. Which we have in 81% of our ground leases. Using the Federal Reserve's current long-term breakeven inflation rate, of 2.25% the 5.9% economic yield increases to a 6% inflation-adjusted yield. That 6% inflation-adjusted yield then increases to 7.5%, after layering in an estimate for unrealized capital appreciation using Safehold's 84% ownership interest in Carrot at its most recent $2 billion valuation. We believe unrealized capital appreciation in our assets to be a significant source of value for the company.
That remains largely unrecognized by the market today. Turning to slide six, we highlight the diversification of our portfolio by location and underlying property type. Our top 10 markets by gross book value are called out on the right, representing approximately 65% of the portfolio. We include key metrics such as rent coverage and GLTV for each of these markets, and we have additional detail at the bottom of the page by region and property type. Portfolio GLTV, which is based on annual asset appraisals from CBRE, remained flat quarter over quarter at 52%. Portfolio rent coverage declined very slightly quarter over quarter from rounding up to 3.5 times previously to now rounding down to 3.4 times.
Lastly, on slide seven, we provide an overview of our capital structure. At quarter end, we had approximately $4.8 billion of debt comprised of $2.2 billion of unsecured notes, $1.5 billion of non-recourse secured debt, $881 million drawn on our unsecured revolver, and $270 million of our pro rata share of debt on ground leases, which we own in joint ventures. Our weighted average debt maturity is approximately nineteen years, and we have no maturities due until 2027. At quarter end, we had approximately $1.1 billion of cash and credit facility availability. We are rated A3 stable outlook by Moody's, A minus stable outlook by Fitch, and BBB plus positive outlook by S&P.
We have benefited from an active hedging strategy and remain well hedged on our limited floating rate borrowings. Of the $881 million revolver balance outstanding, $500 million is swapped to fixed SOFR at 3% through April 2028. We receive swap payments on a current cash basis each month, and for the third quarter, that produced cash interest savings of approximately $1.7 million that flowed through the P&L. We also have $250 million of long-term treasury locks at a weighted average rate of approximately 4%. And current gain position of approximately $29 million which is currently recognized on the balance sheet but not the P&L.
We are levered 2.0 times on a total debt to equity basis, The effective interest rate on permanent debt is 4.2%. And the portfolio's cash interest rate on permanent debt is 3.8%. So to conclude, we're encouraged by good traction in the affordable sector, which we believe will help buoy origination volume while other sectors work their way back into the pipeline, and we have a strong balance sheet and liquidity position that we'll look to take advantage of to be more offensive with our customers. And with that, let me turn it back to Jay.
Jay Sugarman: Thanks, Brett. I mentioned earlier our focus on finding ways to meet our customers' needs. Of course, also important for our customers to live up to their obligations. So let me provide a brief update on the Park Hotel master lease. We recently sent this tenant a lease termination notice for all five hotels governed by the master lease. We'll be pursuing all our contractual rights under the lease. We believe the tenant has breached the master lease covenants, and has not upheld their contractual obligations under the lease which includes specific maintenance and operating standards. Because this is now active litigation, we are limited in what else we can say publicly.
As I'm sure you understand, we can't provide assurance that we will prevail in litigation that the future financial impacts will be positive.
Pearse Hoffmann: Okay. With that, let's go ahead and open it up for questions. Thank you. We will take as many questions as time permits. Once again, please press 1 to ask a question. We will pause a moment to assemble the roster.
Ronald Kamdem: The first question comes from Ronald Kamdem with Morgan Stanley. Please proceed. Hey. Great. Just, two quick ones for me. Just starting with the originations, know, I think they it all multifamily. Looks like all on the West Coast, if I'm looking at this correctly. I did notice the rent coverage ticked down a little bit. I know. Of if you could talk through that. And maybe just while you're on that, just talk about sort of the appetite and the potential for more of these sort of, affordable housing deals? Thanks.
Tim Dougherty: Hey, Ron. It's, Tim Dougherty. Yeah. You see that the assets were out in California on the affordable side as Brett and Jay both mentioned. Seeing great traction there in that space on the affordable side. The team's doing a great job of expanding that throughout the country, which I think we'll see results in the quarters ahead. Right now we've seen the great results on some of these sponsors we have repeat sponsors in California. As for coverage, as you probably have seen in our transactions on development in particular, only this is our underwriting, then we take a haircut to actually our underwriting to show what that coverage is.
So if you actually took the sponsor's cash flows, those coverages are at are in line with our metrics, if not even a little bit above. If you take our underwriting without the haircut, probably more in line. So we're pretty conservative on the development deals since those are a little bit more time to get to stable stabilization. We just want to be able to show those as conservatively as possible. But in terms of the your question on, you know, transactions and deal flow, Look, we're seeing great momentum I think you're seeing that with the closings here. Even post quarter end. We're seeing great momentum even going forward with more transactions under LOI currently.
Ronald Kamdem: Great. That's really helpful. And then, you know, my second one was just appreciate you can't comment on anything on the Park Hotel. usually take to be Any color on just timing on, you know, how long these resolved, high level?
Jay Sugarman: Ron. It's Jay. Yeah. You know, I think it's unfortunate when things end up in litigation. We try pretty hard to find the solutions where both sides can win, but when we can't, obviously we need to enforce our contractual rights. To protect shareholder value. And these things happen overnight. Why we typically would try to avoid it, but in this case, we think it's the right thing to do for shareholder value protection. It will play it out. It's it's gonna take a little bit of time.
Ronald Kamdem: Right. It for me. Thank you.
Anthony Paolone: The next question comes from Anthony Paolone with JPMorgan. Please proceed. Great. Thanks. Just try to understand more just on Park Hotel, understanding the sensitivity. But what exactly you know, did you'd claim was brief? I assume there's still paying rent, or was there some change there?
Jay Sugarman: It's not a rent issue, Anthony. It's it's a standard of care and maintenance really go into it, but, we think we think contract is clear and just couldn't find an agreement on that.
Anthony Paolone: Okay. And then just more broadly on your deal pipeline and so forth. As we see like office, industrial and other types of transactions start come back to the market, are you seeing more of that? And you know, would you would you do more of those types of transactions if those are opportunities come around?
Tim Dougherty: Sure. I think it's Tim. Yes. Definitely. We're actually see, we track front of the funnel all the way through, of course, to closing. And when we look quarter over quarter, the opportunities we're seeing, it's pretty well diversified now and spreading out into the hospitality, retail, office side in addition to the traction you're seeing on the affordable space. Conventional multifamily construction, and recapitalization that's been there. So we're seeing opportunities there. And when the right ones come up, we're we're right on top of them. We think that you know, as you're seeing from some of the other announcements and this quarter, the transaction flow has definitely increased.
Think what Jay mentioned with the yield curve not as steep is starting to you know, release some transactions, which is great for the market. It's takes time to work those deals through the system and for us to start to close on some of those.
Anthony Paolone: K. Thanks.
Kenneth Lee: The next question comes from Kenneth Lee with RBC Capital Markets. Please proceed. Hey, thanks for taking my question. I think you mentioned some of the economic yields range up to 7.5% on some of the more recent deals there. Wondering if you have any expectations for economic yields going forward. I know that in the past, you talked about long term bonds plus anywhere from 75 to 85 basis points. Any change there? And more importantly, as potentially as short term rates move around, you expect any kind of indirect impact to economic yields go forward? Thanks.
Tim Dougherty: Sure, Kenneth. The those yields, look, depends on the timing of these closings. Right? We're based off the thirty year treasury. So over the over the quarter, it was a bearable rate there. Higher in the beginning towards the end. So those most closings happened earlier. Some of them happened towards the end. And then the ones that closed earlier this month or sorry, last month now. What we expect is yes, there's that spread to the long term bond. But also, we expect now where treasuries are high sixes, low sevens is pretty consistent right now with where the treasury seems to be to be at. So and the deals that were in our pipeline are in that range.
Kenneth Lee: Gotcha. And one follow-up, if I may. You touched upon within the prepared remarks seeing some extended timeframes it sounds like to close some of the deals going to fourth quarter or even the first quarter. Any particular factors driving extended out timeframes? Thanks.
Tim Dougherty: Extended time frames, a lot of these deals are development deals. So those do take a little bit more time to close. You know, I think in the affordable space, lot of those are development deals. Most of those are development deals. On the conventional side we closed a few in that space. Versus a recap that could take four weeks to eight weeks to close. So nothing abnormal in the market for those to take a little bit more time. But we're seeing good momentum on that front and pretty consistent deal flow and LOIs being signed.
Kenneth Lee: Got you. You, everyone. Much.
Harsh Hemnani: The next question comes from Harsh Hemnani with Green Street. Please proceed. Thank you. Maybe just a clarification. Did I hear correctly that for the Park litigation, it's against all five of the hotels in the master lease, or is it just against the two that they plan on not renewing? And then second part is it what's the sort of near term financial impact of this? Is Park going to continue to pay rent? During the period of time the legal battle goes on in the background? Or is there gonna be some near term impact from that?
Jay Sugarman: Hey, Harsh. Yeah. The litigation is around all five hotels. Not just the two. And we're obviously working to find a way to continue the hotel's operations as smoothly as possible. So I don't have any more detail I can share on that, but you know, that's certainly our goal.
Harsh Hemnani: Okay. Fair. Oh, so I guess, is the goal here to try to treat the master lease as a package, you know, all or nothing?
Jay Sugarman: Yeah. It is a master lease. And the provisions are backed by a corporate entity. So certainly treat it as a master lease.
Harsh Hemnani: Got it. Okay. Last one for me. I guess maybe higher level on the transactions, right? As you mentioned sort of broader real estate transaction activities up broadly in line with, call it, three twenty one levels. And at the same time, you know, rates haven't necessarily gone back to what it was in '21 and '22, but we stabilized. Volatility has come down where in the low fours, almost consistently. Did those bigger check size transactions start to come back? Are you seeing more of those, or is it still you know, smaller check size, multifamily
Tim Dougherty: I will agree with you on the consistency part. I think that is driving some of the market now. Everyone has a lot more visibility, so transactions are getting done. On the size, the affordable deals tend to be on the smaller size. You saw all the deals that have closed. All the deals that closed in the third quarter, deals that closed quarter to date were affordable. They're on the smaller side. These are actually, I'd say, the smaller side of those even. The larger transactions, you're seeing a lot of trades now starting to happen on the larger deals. Our pipeline has some larger transactions in it than these affordable deals.
But multifamily transactions on the conventional side tend to be somewhere between $40 million of total value to $85 ish million of value. So a third of those, you can kind of figure out what our ground leases are typically sized. And then office and hospitality tend to be a little bit bigger asset size than those. But again, not much different from what you've seen in the past from quarters past what you were mentioning 2021?
Harsh Hemnani: Got it. Thank you.
Rich Anderson: Next question is from Rich Anderson with Cantor Fitzgerald. Please proceed. Hey. Good evening, folks. Have you stated what this sort of forward pipeline it like in dollar terms? You mentioned activity got pushed out, but I don't believe you sort of put a number on what the pipeline looks like on a go forward basis if you were willing to share.
Tim Dougherty: Yes. Well, I guess the word next share the exact number, but I guess to give you an idea of what we have, today under LOI that will close in the coming quarters. I would say it's over about over 15 deals and over $300 million of transactions that will again close in the coming quarters. And a mix between the affordable transactions and conventional multifamily.
Rich Anderson: Okay. Great. And as far as, I'm not gonna ask specifically about Park. I understand you can't talk about that. But just to be clear, a lease termination successfully completed means reversion rights and you get the keys that's one possible outcome, speaking generally about how this works. Is that correct?
Jay Sugarman: That's correct, Chris.
Rich Anderson: K. I that's my second question, so I'll stop there. Thanks.
Ravi Vaidya: The next question comes from Ravi Vaidya with Mizuho. Please proceed. Hi there. Hope you guys are doing well. Just wanted to ask another follow-up on the Park Hotel litigation here. Does this impact your potential interest in maybe pursuing hotel originations going forward? And does there any additional corporate costs that we should be considering for the model, more G and A, legal fees, or any other onetime timers? We think about Q4 and twenty six?
Jay Sugarman: Yeah. I'll take the first part, maybe Brett can take the second part. Look, this is an anomalous outcome. It's not what we expected. This is a master lease form that we didn't create thirty years ago when it was put in place. And yeah, I don't think it impacts our view on any part of the ground lease ecosystem that we're working in. Know, we'll get through it and know, yeah, I don't I don't think you should think of this as a indicator of anything or a precedent for anything.
Brett Asnas: Yeah. And on the on the economic side, you know, or for the p and l, obviously, as Jay mentioned, it's too early to tell. Where this will head. Obviously, you know, we wanted to make this decision on behalf of our shareholders and make sure that we protect value. So I think over the coming quarter, we'll have you know, better visibility and can certainly update you if you and the market as to what that looks like. But for the time being, you know, we feel like we're we're in a good spot in terms of, the consistency of what we've been making. And then moving forward, as Jay mentioned, with the termination.
Any costs associated with that, etcetera, will we'll, we'll be able to give the market better visibility. It just it's it's pretty early and premature at the moment.
Ravi Vaidya: Got it. Appreciate the color there. Just one more. How do you guys think about you know, the recent New York City Merrill win yesterday and the impacts surrounding rent stabilization and maybe broadly how this could impact affordable housing. You guys have a lot of deals with affordable housing and just wanted to see how you know, this type of news and this type of language, impacts the underwriting of those bills. Thanks.
Jay Sugarman: Look. I think we fundamentally follow supply and demand wherever it goes. And, obviously, if you reduce the incentives to create supply, you're gonna choke off supply, which is in many cases just leads Steven tighter market conditions. We're seeing that more generally across the market. Those areas that didn't have supply are starting to recover and there's not a lot of supply in the pipeline and see what happens, rents start to move. So I'm not sure how the administration is thinking about that, but it's certainly our belief that the way to keep rents down is to have supply meet demand. So I'm not sure exactly how this is all gonna play out, to be honest.
We believe we have a solution for the affordable housing problems in this country that's very powerful. We'd like to deploy it in more places. I will tell you a lot of the friction costs are created by government regulations that we would just assume help solve the problems quicker, faster, and better. But we're kind of being held back a little bit by the nature of government regulations in that area. So we're hopeful that people recognize this is a problem that ground leases can be a major part of the solution. And creating new supply is long term, in my mind, a better solution for most municipalities than trying to arbitrarily decide where rents should be.
That just sounds like a tough long term economic solution.
John Petersen: Okay. The next question comes from John Petersen with Jefferies. Please proceed. Great. Can you remind us how much of your multifamily portfolio is affordable housing today?
Brett Asnas: It's 41% of gross book value. And then do you guys have a long term target or cap of where you'd want number to be as a percent of your portfolio?
Tim Dougherty: Yeah, John. I'll get back to you on some more definitive number, but it's a pretty low number now. We just the business really just began eighteen months ago or so with the team being dedicated to it and getting deals closed. After being in so I called it the lab to learn more about the space prior to that. So the team is as you can see has great momentum going forward. In terms of where we like it to be, look, we're we're we're we're growing a massive portfolio here.
So the number on how large it could be in dollars And we're striving to make it very large, I guess, would say without throwing a number out there. On a percentage, you can see over time, different asset classes are active at different times. Say what percentage of the portfolio would be pretty difficult. But, you're seeing that the housing sector of our portfolio, that's what we label it under all multifamily It's majority of the assets that we've closed on the books to date. And we see that trend continuing in terms of the ratio of housing as part of our portfolio.
John Petersen: Okay. And outside of California, like, are the like I guess, which states do you do you think are most likely to see some of these affordable originations? Next? But the capital by the government is allocated by the size of the state. California being the largest is the one that allocates the most. It's actually the most efficient system, at least in our opinion. So we're seeing great traction there. System works quite well. And look. I think the expansion there is into the larger states. So a lot of those are, in the Sunbelt. And coastal. You see a lot there. So our team is working on all of them.
So as time goes on, I think in the coming quarters and year, you'll see us penetrate those markets as well.
John Petersen: Okay. Alright. Thank you.
Christopher Muller: Up next is Christopher Muller with Citizens Capital Markets. Please proceed. So I guess following up on that prior line of questioning, is any of your New York City multifamily exposure to rent stabilized units? And if so, how would a rent freeze even play out given you're a CPI escalators? Would that burden just solely fall on the sponsors?
Jay Sugarman: Yeah. We haven't really cracked in New York, not yet, and that's you're asking one of the questions that we would have to grapple with the goal is always just to put ourselves in a very safe position where we don't have to worry too much about you know, the last dollar risk or the even the middle of the capital stack. So that's what we love about the business, is the safety and predictability about it. We have not seen that opportunity present itself across the New York market. But look, there's got to be a solution We think you know, additional supply is gonna be needed.
And ultimately, we don't wanna play in the equity part of that solution. We wanna play in the land part of that solution. Which we think goes a long way to helping stretch the subsidy dollars that are available This is a big opportunity for efficiency to come to come to the fore. And we think ground leases are be a big part of that.
Christopher Muller: Got it. And then I guess changing gears a little bit. The thirty year treasury rate increased from a recent low of $4.55 to current 4.75ish. There was a similar 20 basis point drop in rates during the third quarter, So my question is, is how sensitive is your guys' pipeline to these types of moves? Do you see a material change in demand from those two examples? And then just a follow-up on that is what level of the thirty year do you think would really get things moving for your business?
Tim Dougherty: Yeah. It's a similar event that occurred last year, right, where the treasury dipped down somewhere around September, October time frame and it came back up in November. So it's sort of deja vu a little bit the last couple of days. What happened there. And you saw the increase in know, just in terms of the market chatter of deals when the when the rates did were going down. A lot of deals trying to close at the exact moment. A lot of people knowing that where rates are trending is in this higher level for longer.
So when it does dip down, people wanna transact quickly So when it was there, it was the flow really, you know, in terms of the chatter because deals can't close in days. It could take weeks and months. Was heavier. So I think we're testing this last year, now this year, we're the ten year dips closer to four and the thirty year dips below four fifty. You start to see a lot more transactions where it really flows. Don't know. We haven't seen it. As a whole market, right, where acquisition flow really picks up. We pay a lot of attention to of that side of the market, not just recapitalizations. People have to refinance their debts.
It's really the acquisition flow that shows you the market's fully healed. And but when those rates were hitting those levels, you started to see a lot more, talk about or sales and acquisitions. Okay.
Jay Sugarman: Okay. Just as a longer term perspective, when we started this business in 2017, we said the sweet spot is sort of 3% to 5% We've been at the lows We've seen the highs. If you wanted a, you know, a true middle of the road, I think 4% on the thirty year is a great place for both sides to feel good about. I think this is as much about psychology as anything else. When the market thinks rates are topping and headed back down, it's harder to want to lock in ninety nine year capital.
If you have that belief We think we've got some flexibility in terms of when customers can lock rates that could be a useful tool for them. To maybe open that door a little wider for them to make a good decision both in the near term and the long term. So it's one of the things we're watching very carefully. It's Tim said, uncertainty is the worst thing of all. And when markets don't know which direction things are headed, that tends to put a freeze on things. What we're hoping for is a little more stability in '26. A little bit lower rates little bit less steep yield curve. Those are all positive factors for us. Got it.
It's all very helpful. Thanks for taking the questions.
Rich Anderson: Okay. Have a follow-up coming from Rich Anderson with Cantor Fitzgerald. Please proceed. I feel like I shortchanged myself. So I'm gonna ask Jay you a question that I want you to sort of sort of get your get your take on a common criticism, I guess, of ground leases. You know, for everything that's good about them. As you close in at the to the end of the of the lease term, you could argue that the incentive of a of a leasehold owner is lessened to, you know, maintain a level of capital investment because they see, you know, you know, sort of the end of the road in terms of the lease.
And one thing or two well, two will happen. The lease will expire. You'll get the keys back, or they'll they'll renew the lease and have to pay, you know, a big a bigger rent to you. So, you know, what's the what do you how do you take this as a sign of the criticism of ground leases that the closer you get to the end of it, the less incentivized your customer is to invest, because they see the writing on the wall coming. I'm just curious how you would respond to that.
Jay Sugarman: Yeah. I think the fallacy and all that for me, Rich, is we're always looking for solutions that can create value. So the market tells you what things are worth. And, you know, if somebody wants an extension, it's pretty easy to price the value of that. And that's certainly, if you like the assets you're running, that's that's always going to be a good solution. And I think the markets will reward longer term ground lease solutions for that leaseholder. With a value increase that goes a long way to creating a business deal between the landowner and the building owner. That can extend for a new ninety nine years.
So that's what we think most cases is a very likely solution is extensions. Good operators who are doing a good job in meeting the terms of their leases. There's a lot of places to create win solutions. So we're we're very careful in terms of our standard agreement. Has maintenance standards, But this is more about just doing smart business. We wanna create long term customers and we think we have lots of solutions at the end that will work for them. So, again, as I said, I'm I'm not sure the current condition we're in is a is a precedent in any way. We'd we've seen plenty of other situations not end like this.
So I still feel pretty confident that the economics of continuing to run a good property will always trump sort of that dynamic you mentioned.
Rich Anderson: Or if it's but if it's not a good property, they'd be willing to walk and through something like this. That's that's the point. I hear you. But if they've fallen out of love with whatever they are running, perhaps, You know? That's yeah. But anyway. We could talk about it another time. Thank you.
Pearse Hoffmann: Mister Hoffman, we have no further questions. Thanks everybody for joining us today. If there are any additional questions on the release, please feel free to contact me directly. Operator, would you please give the conference call replay instructions once again?
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