Eastown apartments at 6201 Hollywood Boulevard and SAFE’s Jay Sugarman (Credit: Morley Builders)
Jay Sugarman’s Safety, Income & Growth, which just closed its $250 million IPO in late June, is already making moves in Hollywood.
The New York-based REIT — 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, according to a release from Safety Income, or SAFE.
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.
Developed by DLJ Real Estate Capital Partners and Clarett West Development, the second phase of the roughly $450 million Eastown project at 6200 and 6201 Hollywood Boulevard is almost complete.
The first phase of the 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. Tenants include a CVS, Shake Shack, Dunkin’ Donuts, and SoulCycle.
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. It is unknown whether the developers themselves tried to acquire the land.
SAFE, to be sure, has been aggressive in its early days as a public company.
“6200 and 6201 Hollywood are a strong step forward toward our goal to double the size of SAFE’s portfolio by the end of the year,” SAFE shareholder and manager Tim Doherty said in a release.
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. In such triple net leases, tenants are typically responsible for the costs of developing and operating the property, as well as taxes and insurance, according to the Wall Street Journal. 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 Journal. “While the building on your land might be obsolete in 20 years, the land itself shouldn’t be.”
The contracts for SAFE’s leases will include contractual base rent increases, according to its IPO prospectus.
“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,” the prospectus said.
Nederlander Sr. died last year at age 94. The Nederlander family owns more than a handful of famous theaters around the country, including the Gershwin in New York City.