Faced with rising interest rates and steep construction costs, affordable housing developers are adopting 99-year ground leases as a creative financing mechanism.

In Santa Cruz County, The Pacific Companies closed a 99-year ground lease with institutional investor Safehold to finance a 256-unit tax credit project in the Soquel area.

This strategy allows developers to avoid the massive upfront capital expenditures associated with land purchases, using the ground lease as a ‘gap filler’ to keep projects financially viable.

These deals rely on 4% Low-Income Housing Tax Credits (LIHTC) and feature fixed 2% annual rent increases.

Historically reserved for government and non-profit entities, ground leases are fast becoming a mainstream private financing tool in California’s most expensive residential markets.