Sold out from under them? SAFE buys land underneath DLJ and Clarett’s Eastown development for $142M

The second phase of the roughly $450M project is nearing completion

TRD LOS ANGELES /
Jul.July 17, 2017 05:45 PM
Eastown apartments at 6201 Hollywood Boulevard and SAFE’s Jay Sugarman (Credit: Morley Builders)

Jay Sugarman’s Safety, Income & Growth (SAFE), which raised nearly $250 million through a late June IPO, is already making big deals in Hollywood.

The New York-based real estate investment trust — the only publicly traded firm focused solely on acquiring ground net leases — bought the land under the Eastown development for $142 million earlier this month, the company announced. There are 87 years remaining on the two ground net leases beneath the mixed-use property.

The seller was Nederlander Organization, which owns and operates the Hollywood Pantages theater across the street. The late James Nederlander Sr. bought the land 38 years ago. The Nederlander family owns several famous theaters around the country, including the Gershwin in New York City.

The first phase of the roughly $450 million Eastown project — the North Block Eastown apartments at 6201 Hollywood — was completed in 2014. Dubbed Blvd 6200, the complex contains 535 apartments and more than 70,000 square feet of ground-floor retail with tenants such as Shake Shack and SoulCycle. Developed by DLJ Real Estate Capital Partners and Clarett West Development, the second phase of the project, at 6200 and 6201 Hollywood Boulevard, is almost complete.

The South Block was originally slated for completion this year, according to a 2016 release from DLJ, though it is unclear if the timeline has changed. It will have 507 apartments and about 60,000 square feet of ground-floor retail.

Representatives of DLJ, Clarett, Nederlander and SAFE could not be reached for comment. SAFE’s Tim Doherty said in a release that the deal would help the firm achieve its goal of doubling its portfolio by the end of the year.

In articles around the time of its IPO, company representatives said they sought ground net leases, in part, because they are more protected from an economic downturn than other assets.

“Our investment thesis is predicated, in part, on what we believe is an untapped market opportunity to expand the use of the ground net lease structure to a broader component of the approximately $7.0 trillion institutional commercial property market,” SAFE’s prospectus said.

In such triple net leases, tenants are typically responsible for the costs of developing and operating the property, as well as taxes and insurance. If a developer defaults on a ground lease, the landowner could potentially seize its buildings.

“The upshot of this is that you’re not buying the part of real estate that loses value, you’re getting the good part,” Michael Underhill, CIO at asset management firm Capital Innovations LLC, told the Wall Street Journal. “While the building on your land might be obsolete in 20 years, the land itself shouldn’t be.”

 

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