Earnings Call Transcript - SAFE Q2 2025

Operator, Operator

Good afternoon, and welcome to Safehold's Second Quarter 2025 Earnings Conference Call. As a reminder, today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Pearse Hoffmann, Senior Vice President, Head of Corporate Finance. Please go ahead, sir.

Pearse Hoffmann, Senior Vice President, Head of Corporate Finance

Good afternoon, everyone. Thank you for joining us today for Safehold's earnings call. On the call today, we have Jay Sugarman, Chairman and Chief Executive Officer; Brett Asnas, Chief Financial Officer; and Tim Doherty, Chief Investment Officer. This afternoon, we plan to walk through a presentation that details our second quarter 2025 results. The presentation can be found on our website at safeholdinc.com by clicking on the Investors link. There will be a replay of this conference call beginning at 8:00 p.m. Eastern Time today. The dial-in for the replay is (877) 481-4010 with a confirmation code of 52799. Before I turn the call over to Jay, I'd like to remind everyone that statements in this earnings call, which are not historical facts may be forward-looking. Our actual results may differ materially from these forward-looking statements, and the risk factors that could cause these differences are detailed in our SEC reports. Safehold disclaims any intent or obligation to update these forward-looking statements, except as expressly required by law. Now with that, I'd like to turn it over to Chairman and CEO, Jay Sugarman.

Jay Sugarman, Chairman and Chief Executive Officer

Thanks, Pearse, and good afternoon to all of you joining us today. We saw better traction in the second quarter as we rolled out a test program in certain markets for one-stop capital solutions combining ground leases and leasehold loans to simplify and shorten the time to closing. We also continue our efforts to use Safehold ground leases to enhance affordable multifamily projects and enable top players in that market to maximize their opportunities. On the flip side, market conditions remain challenging as larger customers try to figure out the cross currents and uncertainty that characterize the first half of the year. Our goal, as always, is to help them access our low-cost, long-term, and efficient capital and enable them to focus more on improving property operations and less on figuring out the ever-evolving capital markets. We were pleased that a number of customers found our ground lease a better solution for their needs this quarter, and we'll continue innovating to find the best ways to help grow Safehold and the ground lease industry as a whole. All right. Let me turn it over to Brett to review the quarter and full year in more detail.

Brett Asnas, Chief Financial Officer

Thank you, Jay, and good morning, everyone. Let's begin on Slide 2. During the quarter, new origination activity was approximately $220 million, including 4 ground leases for $123 million and 3 leasehold loans for $97 million. Of the 4 new ground leases, 3 were market rate multifamily assets and 1 was a hotel asset. Markets include Boston, San Diego, Salt Lake City, and the Space Coast of Florida. Credit metrics are in line with our portfolio targets with a GLTV of 33%, rent coverage of 3.2x, and an economic yield of 7.2%. Overall, we are pleased to begin converting several of our previously announced LOIs into closings, particularly at what we believe are very attractive risk-adjusted returns. Importantly, we added 4 new customers to our platform as all ground leases were closed with a first-time sponsor. As a reminder, approximately 40% of our existing customers have done repeat business with us. So, every new customer we add to the platform is a highly valuable source for potential future deals. Moving to the pipeline. We continue to see positive engagement from both new and existing customers, particularly within the multifamily asset class. The pace of signed LOIs has steadily increased over the course of the year and currently sits at its highest level since 2022. This has largely been driven by success within our growing affordable housing segment, which we expect to more actively contribute to closings later this year and into 2026. Macro volatility, of course, remains a highly influential factor in getting these deals over the line, but we're optimistic that the sectors we're focusing on and the product enhancements we're piloting with customers can add a layer of resiliency for the new business. At quarter end, the total portfolio was $6.9 billion and UCA was estimated at $9.1 billion, which was an approximately $200 million increase from last quarter, primarily driven by new investments. GLTV was 52% and rent coverage was 3.5x. We ended the quarter with approximately $1.2 billion of liquidity, which is further supported by the potential available capacity in our joint venture. Slide 3 provides a snapshot of our portfolio growth. In the second quarter, we funded a total of $114 million, including $61 million of ground lease fundings on new originations that have a 7.0% economic yield, $4 million of ground lease fundings on pre-existing commitments that have a 5.8% economic yield, $43 million of new leasehold loans that earn interest at an approximate rate of SOFR plus 249 basis points, and $6 million on existing leasehold loans related to our share of the leasehold loan fund, which earned interest at a rate of SOFR plus 398 basis points. Our ground lease portfolio has 151 assets and has grown 20x by book value since our IPO, while estimated unrealized capital appreciation has grown 21x. We have 88 multifamily ground leases in the portfolio and have increased our exposure from 8% by count at IPO to 58% today. In total, the unrealized capital appreciation portfolio is comprised of approximately 37 million square feet of institutional quality commercial real estate, consisting of approximately 21,000 multifamily units, 12.5 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 4, let me detail our quarterly earnings results. For the second quarter, GAAP revenue was $93.8 million, net income was $27.9 million, and earnings per share was $0.39. The decline in GAAP earnings year-over-year was primarily due to a $1.7 million increase in our non-cash general provision for credit losses. New leasehold loan originations were the primary contributor to the increase as these assets carry a higher general provision rate versus typical ground leases, and the provision is taken on the full loan commitment, not necessarily what has been funded. For example, in Q2, approximately $1 million of the total $2.4 million non-cash general provision can be attributed to the unfunded loan commitments. Excluding the $0.03 impact from non-cash general provisions, Q2 earnings per share was $0.42. On Slide 5, we detail our portfolio's yields. For GAAP earnings, the portfolio currently earns a 3.7% cash yield and a 5.4% annualized yield. Annualized yield includes non-cash adjustments within rent, depreciation, and amortization, which is primarily from the 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 5.8% 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 look backs, which we have in 81% of our ground leases. Using the Federal Reserve's current long-term breakeven inflation rate of 2.28%, the 5.8% economic yield increases to a 6.0% inflation-adjusted yield. That 6.0% inflation-adjusted yield then increases to 7.5% after layering in an estimate for unrealized capital appreciation using Safehold's 84% ownership interest in Caret 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 6. 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 an annual asset appraisal from CBRE, remained flat quarter-over-quarter at 52% and rent coverage on the portfolio was unchanged at 3.5x. We continue to believe that investing in well-located institutional-quality ground leases in the top 30 markets that have attractive risk-adjusted returns will benefit the company and its stakeholders over long periods of time. Lastly, on Slide 7, 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, $812 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 19 years, and we have no corporate maturities due until 2027. At quarter end, we had approximately $1.2 billion of cash and credit facility availability. We are rated A3 stable outlook by Moody's, A- stable outlook by Fitch, and BBB+ 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 $812 million revolver balance outstanding, $500 million is swapped to fixed SOFR at 3% through April 2028. We received swap payments on a current cash basis each month. And for the second 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 4.0% and current gain position of approximately $31 million. Of this $250 million, $100 million notional was unwound in April for a $13 million cash gain and the remaining $150 million notional is active and outstanding with a mark-to-market gain of $18 million. These treasury locks are mark-to-market instruments currently recognized on the balance sheet, but not the P&L. They can be unwound for cash at any point through their designated term. However, only when they are applied to long-term debt, would they then be recognized in our P&L over time. We are levered 1.98x 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 customer engagement and seeing that translate into more LOIs and closings. The balance sheet is well positioned with ample liquidity, no near-term maturities, and valuable in-place hedges. We remain focused on delivering a highly efficient capital solution for customers and expanding our market-leading position.

Jay Sugarman, Chairman and Chief Executive Officer

Thanks, Brett. Let's go ahead and open it up for questions.

Operator, Operator

First question comes from Mitch Germain with Citizens Capital Markets.

Mitchell Germain, Analyst

Jay, I'm curious about new sponsor conversion. Obviously, 4 investments this quarter, all with new sponsors. So, I'm curious when the discussions with many of those parties began? And how long did it take to finally get them over the finish line?

Jay Sugarman, Chairman and Chief Executive Officer

Tim, do you want to take that?

Timothy Doherty, Chief Investment Officer

Sure. Mitch, it varies. I think, look, our timeline of converting clients has gotten shorter and shorter, but some of these clients and actually one of the deals, because of where the market is, was a development deal. We've been talking to that sponsor about that deal for a couple of years. And finally, the market has turned for them so that they could actually raise more equity and develop the project versus one of the projects that we closed was a recapitalization, and the market turbulence in the first and second quarter. They came to us and that was converted in 4 weeks. So, it can range, but again, our conversion over the years has gotten shorter and shorter as we've seen more activity in our portfolio.

Mitchell Germain, Analyst

That's super helpful. And last one for me. I think you guys talked about affordable housing transactions possibly picking up in the back part of this year into next year. I think most of the ones you've done so far were somewhat geographically centralized. Is that going to continue to be the case? Or have you been able to grow the different states and regions that your product is available to help fund some of those transactions?

Timothy Doherty, Chief Investment Officer

It has grown in terms of our exposure to other areas of the country. Initially, we were more focused geographically. However, as we've expanded our reach and our team, we're now seeing transactions in other states. The LIHTC program is a federal program, so as we gain more experience, we're expanding our reach, and we can definitely see the traction in our pipeline.

Jay Sugarman, Chairman and Chief Executive Officer

Yes. I'd say, Mitch, we think it takes about 12 months to do the homework, to meet the players, to understand a new market. So, we expect to see some of that work come to fruition later this year, early next year.

Operator, Operator

The next question comes from Anthony Paolone with JPMorgan.

Anthony Paolone, Analyst

Great. Thanks. First, in terms of the pipeline, last quarter, you guys articulated $386 million in letters of intent, and you did $220 million, I guess, here. And so maybe can you just help roll that forward as to where it sits today?

Timothy Doherty, Chief Investment Officer

Sure, Anthony, it's Tim again. Yes, the remainder of those deals obviously still remain, and we've grown, as you heard from Brett, increased the LOI amount significantly and obviously, that with the dollar amount, and it's still, as Brett had mentioned, it's heavily weighted towards multi and a good split of the affordable and market rate side. So, we're pretty encouraged by not just the deal volume we're seeing, but actually the conversion into LOIs. So, we're pretty pleased with where we sit.

Anthony Paolone, Analyst

Is $400 million still the expected pace?

Timothy Doherty, Chief Investment Officer

Yes. Look, I think right now, we're not going to say the actual number. I think right now, it's just the encouragement of how many of those deals are still there plus the increase in volume. And where we are today compared to where we were last year, we're ahead of last year's pace. We can't control when these are going to close, but we're really encouraged on what we have today.

Anthony Paolone, Analyst

Okay. And then just my second one, just on the leasehold loans that you're doing. Can you just talk about, are those like longer duration? Are the borrowers using these as transitional loans where they're going to look for something else down the road? Just want to understand sort of the intent and nature of those loans. And yes, that would be helpful.

Jay Sugarman, Chairman and Chief Executive Officer

Sure, Anthony, it's Jay. So, think of this as a test program at this point. We're really trying to find ways to shorten the time frame and increase the closing probability. So, most of these are meant to be accelerators. They are not meant to be permanent capital solutions. We prefer to get them in place and help customers get to the finish line. But the average term we're hoping is 3 years or less, just in terms of how long our customers use that capital. So they are, again, not intended to be long-term solutions for our customers, but they give them the time to not only close the deal, but also to execute on their business plans. And the only other thing I'd say on that, we're still trying to figure out what the best way to execute on these is, but the majority, in fact, the vast majority of the pipeline is not going to be using leasehold loans. So, we're still doing the work we need to do to make sure that we get bang for the buck.

Operator, Operator

Next question comes from Haendel St. Juste with Mizuho.

Ravi Vaidya, Analyst

This is Ravi Vaidya on the line for Haendel. Maybe if we could talk about the cadence of capital deployment and whether the current quarterly originations is a good run rate looking forward. I think on the last call you had mentioned that the volatility with Liberation Day might have delayed some deals and some volatility in interest rates also leads to further delays. So maybe how are you thinking about the cadence of future capital deployment in the back half of '25 and '26?

Timothy Doherty, Chief Investment Officer

Sure. This is Tim. The timing is clearly influenced by the market. As reflected in our 80-year history, we tend to see a significant number of closings in the fourth quarter, which is just how the market operates. Over the past year, particularly in the last few months, the market has been quite volatile and uneven. However, we’ve observed some stabilization recently, and activity is picking up. This trend is evident from other companies' reports and the flow of capital. We're still leaning towards year-end closings, as many deals in our affordable business typically take 2 to 6 months to finalize, with some extending to 12 months or more. Overall, I believe we are returning to a more typical real estate market where the results may vary from quarter to quarter, but the annual performance remains relatively consistent.

Ravi Vaidya, Analyst

Got it. That's helpful. And maybe just one more here. How does the recent passing of the One Big Beautiful Bill Act impact the demand for ground leases in your product in terms of an alternative financing source and a number of provisions in that bill. So, just wanted to hear your thoughts on that.

Jay Sugarman, Chairman and Chief Executive Officer

Yes, it might be a little too early to know the full impact. Directionally, we think development is going to be tricky until people figure out where the tariffs settle out. So, pipelines, I think you probably heard across a number of industries, pipelines are down as people have not been able to figure out how to pencil new projects. So, there seems to be a little window here of uncertainty that is probably good for existing assets and a little trickier for development assets, but we're navigating our way through that reasonably successfully. Some of the bigger themes probably don't impact us as much as other companies. We're looking for good dirt. There's nothing in the bill that dramatically changes what we're looking for. I do think we very much focus on flow of funds and certainly hope economic growth and international investment in the U.S. eventually get back to where we'd like to see them. So, this is more intangible stuff to us, I think, than to some others, but those intangibles matter. And we don't know how to handicap that just yet.

Operator, Operator

Up next is Ronald Kamdem with Morgan Stanley.

Ronald Kamdem, Analyst

I have a couple of quick questions. Regarding the four new sponsors, I believe one of the deals was related to a hotel, which is intriguing. Could you provide some insights on the potential for repeat business with these arrangements, or are they more likely to be one-time opportunities? Additionally, I would appreciate more details about the hotel deal and how it came to be.

Timothy Doherty, Chief Investment Officer

We view the four sponsors as potential long-term partners and are currently engaged in discussions with one of them regarding another deal that is gaining traction. Regarding hospitality, I consider it alongside the inquiries we've had in previous quarters about our efforts in both hospitality and office spaces. We are observing increased activity in these areas as the capital markets improve, which positively impacts asset classes like office and hospitality as they begin to stabilize from past leverage. We are actively engaging in discussions related to both sectors, especially since we've noticed cap rates widening; effectively utilizing our land in these contexts can significantly benefit our capital structures. Consequently, we are experiencing a growing number of opportunities for these types of transactions, and we are optimistic that this will be the first of many.

Ronald Kamdem, Analyst

I have a question about the economic yield for the ground lease. Should we view that as a spread to the 30-year following? Additionally, how should I consider the yield on the leasehold loans, and how does that compare to the economic yield of the new ground lease?

Jay Sugarman, Chairman and Chief Executive Officer

Yes. I think 2 things. One, we continue to try to shoot for 100 basis points over the nearest benchmark, which is the 100-year bond complex. We're seeing that market sort of settle in at the 5%, 6% range right now. So, we think the economic yields in the quarter were quite attractive relative to that. That's before inflation and before the Caret value. So, we quite like where the most recent deals were getting done. What was the second part?

Ronald Kamdem, Analyst

Loans?

Jay Sugarman, Chairman and Chief Executive Officer

Yes, the loans are intended to be an accelerator rather than a primary business line. We are focused on maintaining reasonable returns, around SOFR plus 250 to 300. However, I'm not ready to emphasize that just yet as we are still assessing the best way to utilize it. With SOFR currently in the low 4s, the return on assets is likely not significantly different.

Operator, Operator

The next question comes from Caitlin Burrows with Goldman Sachs.

Jeremy Kuhl, Analyst

This is Jeremy Kuhl on for Caitlin. So, my question is, thinking about future originations, how does SAFE plan to fund those for the rest of the year?

Brett Asnas, Chief Financial Officer

It's Brett. As we've noted to the market right now, the way we're thinking about our capital sources and thinking about our leverage at the moment, there's a few things that we've endeavored on. One is, any of the deals that we've announced, there's typically an upfront funding component and a future funding component. When we think about every, call it, a little more than $100 million funded, it takes leverage up by 0.05x. So, not a real big move in leverage is the way that we and the agencies and investors think about it. So, we have some runway here over the coming quarters in terms of true equity need. From the debt standpoint, you see that our revolver is drawn a little over $800 million. We are appropriately hedged. At some point, we'll look to term out some of those borrowings. And what we're really focused on is the shape of the curve and thinking about duration and pricing dynamics. But when we think about our hedging program, it's certainly been a benefit. Last year, we had over $40 million in gains through our hedges and this year, over $30 million. So, think about the last 18 months and $75 million of hedging locking in our margins as super important. So, again, we'll look to term out some of those borrowings hopefully, over the remainder of the year. And then, on the equity side, it's going to be pretty much dependent on those funding needs and what the pipeline or originations look like over the remainder of the year.

Jeremy Kuhl, Analyst

Great. And then just one follow-up for me. Is there any update on the Park Hotels portfolio? I think the tenant mentioned they might not renew 2 of the hotels past the rest of this year.

Jay Sugarman, Chairman and Chief Executive Officer

Yes. The Park portfolio, purchased nearly 30 years ago, originally consisted of 16 assets, which we have gradually sold off, bringing the total down to 5. We believe that 3 of these assets hold considerable value. The 2 assets for which the tenant is not renewing include one that is quite unique as it is situated on a ground lease, of which we own a portion. We need to determine if we can extend this ground lease with the partner. The other asset is relatively small, and there isn't much potential for growth there. The majority of the upside is in the remaining 3 assets.

Operator, Operator

The next question is from Ki Bin Kim with Truist.

Ki Bin Kim, Analyst

Just to follow up on that last question. At least in the disclosure, you said the coverage was 3.5x for this master lease. I'm assuming the 2 that they're not renewing are lower, but just curious why a tenant would choose to not renew, assuming that coverage was still profitable or maybe I'm wrong. Yes, if you can just walk through that.

Jay Sugarman, Chairman and Chief Executive Officer

Yes. Obviously, historically, this has been a really well-performing portfolio. I think post-COVID, certainly, the tenant here has looked at their strategy and has begun to move away from some of the things historically that have been part of their portfolio. The portfolio is definitely a mix of really high performers and not as good performers. And so, not surprised, these are the 2 assets that probably had the lowest coverage of the portfolio. And so, we're not that surprised, but we do think there's a lot of value in the other 3.

Ki Bin Kim, Analyst

Okay. Should there be an income impact as these assets transition to different owners or to some other location?

Jay Sugarman, Chairman and Chief Executive Officer

Yes. Look, historically, as I said, these have been well-performing assets. Certainly, pre-COVID, they were strong performers. Now transition years are never great, Ki Bin, as you might suspect in the hospitality context, getting everything resettled. But I think long term, we certainly expect to not suffer any significant change.

Ki Bin Kim, Analyst

Okay. And just one last question about the loans you're providing. Do these loans come with conditions that if the borrower completes the project, they might be converted into ground lease agreements at some point?

Jay Sugarman, Chairman and Chief Executive Officer

All the loans we have made already have our ground lease in place. We only provide these loans if we have the ground lease first. We are not financing fee simple assets. These loans are secured by Safehold ground leases.

Operator, Operator

Up next is Harsh Hemnani with Green Street.

Harsh Hemnani, Analyst

Maybe one on the hotel origination from this quarter. Did the check size on that origination and the yield vary materially from sort of the average 5.2% initial cash yield this quarter?

Timothy Doherty, Chief Investment Officer

This hotel deal was actually an acquisition, not our typical lease. The cash yield compared to the ROA varies. We made the acquisition based on the metrics we want to achieve for ROA, considering it has provisions that are not as straightforward as our usual leases with bumps and CPI resets. Our decision was based on what we believe to be the equivalent return, factoring in inflation or other adjustments in the deal.

Jay Sugarman, Chairman and Chief Executive Officer

Yes. It was a very interesting deal, low LTV, great coverage, great market. We have experience in that market. Actually, one of the Park assets is not far from this one. So, we have lots of good knowledge there. And it was a little bit tighter because of the very solid credit metrics, but certainly met the ROA targets we were shooting for.

Harsh Hemnani, Analyst

Got it. That's helpful. And then maybe one on the Park assets, right? You've seen this coming for a little bit, not too much of a surprise. And sounds like there's 2 assets. And the one you're planning to sell, is it fair to assume that perhaps conversations around that have begun? And if so, then once sort of the assets come back in December or around December, how long do you think that lag is to be able to sell that asset? And then similarly on the other one to be able to negotiate an extension with the partner ground lease holders?

Jay Sugarman, Chairman and Chief Executive Officer

Yes, it may be a bit early to concentrate on it, but we are preparing for a transition. As I mentioned, transitioning these properties requires significant operating expertise. We will have support for this process and will then prepare the assets for sale. However, I wouldn't say we have control over the asset at this time, so it is still a bit premature.

Operator, Operator

Our next question comes from Jon Petersen with Jefferies.

Jonathan Petersen, Analyst

I wanted to ask about your office portfolio, maybe specifically Manhattan. So the Manhattan office market has been doing particularly well as office markets go over the last year or so. So, I'm curious if you had any commentary on what that means in terms of how land values have changed and if there's maybe any opportunity to kind of realize some of that value as you focus more on multifamily and deemphasize office a bit?

Jay Sugarman, Chairman and Chief Executive Officer

Yes. Look, Manhattan is a great market long term. It's one of the long-term cities we want to have exposure to. I think the good news is, both the office market seems to be recovering, but you've also had this tax-driven resi conversion incentive 467-m come into place. So, supply is slowly being drained out of the market and demand has increased. So those are good things. I'm not sure how big an impact that's going to have on land in the near term, but certainly, those are the kind of dynamics long term that have always made New York land very valuable. So, we like seeing that economic sort of pick up across both multifamily and office, and we're actually seeing it in retail as well. So, New York is one of those markets that turns quickly when people get back to work, and that's what's happened. We're not seeing quite that same dynamic in some of the other gateway cities yet. So we definitely have our eyes on, are there opportunities in New York because it seems to be a little bit ahead of the market.

Jonathan Petersen, Analyst

Are there specific markets or property types where you might be interested in selling some of your land? You mentioned the two hotel assets, but I'm curious about other possibilities.

Jay Sugarman, Chairman and Chief Executive Officer

We're always looking at where we can deploy capital and potentially where we can recycle capital. It's hard to get ground leases, as you know. They rarely come up for sale. So, creating them is really the focus of the company. But Brett's team is always looking at the overall portfolio and looking to execute the best capital plans we can, and that has to include looking at existing assets. But I'd say, right now, multifamily for us has been very much an active market we can play in. We have not seen a lot of opportunities in office either to play new or to sell existing. But there are always conversations going on about how do we finetune the portfolio and figure out ways to really get to the next generation of owners. So, can't say we're jumping in with 2 feet, but we do have our eyes on it.

Jonathan Petersen, Analyst

Okay. For my last question on affordable housing, I have a political question. Affordable housing is undoubtedly a political issue. In the New York election with Mamdani, there was a significant emphasis on affordable housing. When you observe that shift in political narrative, does that create a net positive for Safehold as you work to create more opportunities in that space?

Jay Sugarman, Chairman and Chief Executive Officer

I will speak first, and then Tim can provide additional insights since he is directly involved. Our affordable team is effectively addressing a significant challenge, which is that demand exceeds supply, and bringing that supply to the market takes considerable time due to the political process involved. We have established credibility with key stakeholders over the past two years, which is crucial. Overall, the housing market remains understocked, and there is political attention on finding solutions. New York presents challenges due to the numerous players involved in the discussion. We have seen more success in other states. When the focus is on enhancing supply, they are often discussing minimal increases of 1% to 3%. Changing the current dynamics will require substantial effort from many parties, which has proven to be very challenging. We believe we can contribute positively to the solution, especially where affordable housing is being developed in suitable areas. While I would like to say we can achieve this in New York, our proposed ideas have not aligned with the existing system constraints. However, we are convinced there are better approaches, and we would be eager to engage in that process.

Timothy Doherty, Chief Investment Officer

I believe that covers everything. The key point is that when we look beyond the local market of New York City, our capital is incredibly affordable, and we have a significant system that can facilitate the construction of much more affordable housing. We are actively assisting developers in achieving this. For us, partnering with affordable developers has been an excellent opportunity to help expand the availability of affordable housing.

Operator, Operator

Mr. Hoffmann, we have no further questions.

Pearse Hoffmann, Senior Vice President, Head of Corporate Finance

Great. If there are any additional questions on today's release, please feel free to reach out to me directly. Operator, would you please give the conference call replay instructions once again? Thank you.

Operator, Operator

There will be a replay of this conference call beginning at 8:00 p.m. Eastern Time today. The dial-in for the replay is (877) 481-4010 with the confirmation code of 52799. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.