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Other Investments

3 Months Ended

Mar. 31, 2020

Investments, All Other Investments [Abstract]

The Company's other investments and its proportionate share of earnings (losses) from equity method investments were as follows ($ in thousands):



					Equity in Earnings (Losses)
	Carrying Value as of				For the Three Months Ended March 31,
	March 31, 2020		December 31, 2019		2020			2019
Real estate equity investments
Safehold Inc. ("SAFE")⁽¹⁾	$	834,351	$	729,357	$	19,338		$	7,316
iStar Net Lease II LLC ("Net Lease Venture II")	46,183		30,712		193			(86		)
Other real estate equity investments	96,681		104,553		(2,082		)	(2,123		)
Subtotal	977,215		864,622		17,449			5,107
Other strategic investments⁽²⁾	52,337		43,253		(837		)	202
Total	$	1,029,552	$	907,875	$	16,612		$	5,309

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(1)	As of March 31, 2020, the Company owned 33.4 million shares of SAFE common stock which, based on the closing price of $63.23 on March 31, 2020, had a market value of $2.1 billion. For the three months ended March 31, 2020, equity in earnings includes a dilution gain of $7.9 million resulting from a SAFE equity offering in March 2020.

(2)

During the three months ended March 31, 2020, the Company identified an observable price change in an equity security held by the Company as evidenced by an orderly private issuance of similar securities by the same issuer. In accordance with ASC 321, the Company remeasured its equity investment at fair value and recognized a mark-to-market gain of $9.9 million in "Other income" in the Company's consolidated statements of operations.

Safehold Inc.—Safehold Inc. ("SAFE") is a publicly-traded company formed by the Company primarily to acquire, own, manage, finance and capitalize ground leases. Ground leases generally represent ownership of the land underlying commercial real estate projects that is net leased by the fee owner of the land to the owners/operators of the real estate projects built thereon ("Ground Leases"). As of March 31, 2020, the Company owned approximately 65.4% of SAFE's common stock outstanding.

In January 2019, the Company purchased 12.5 million newly designated limited partnership units (the "Investor Units") in SAFE's operating partnership ("SAFE OP"), at a purchase price of $20.00 per unit, for a total purchase price of $250.0 million. The purpose of the investment was to allow SAFE to fund additional Ground Lease acquisitions and originations. Each Investor Unit received distributions equivalent to distributions declared and paid on one share of SAFE's common stock. The Investor Units had no voting rights. They had limited protective consent rights over certain matters such as amendments to the terms of the Investor Units that would adversely affect the Investor Units. In May 2019, after the approval of SAFE's stockholders, the Investor Units were exchanged for shares of SAFE's common stock on a one-for-one basis. Following the exchange, the Investor Units were retired.

In connection with the Company's purchase of the Investor Units, it entered into a Stockholder's Agreement with SAFE on January 2, 2019. The Stockholder's Agreement:


•	limits the Company's discretionary voting power to 41.9% of the outstanding voting power of SAFE's common stock until its aggregate ownership of SAFE common stock is less than 41.9%;


•	requires the Company to cast all of its voting power in favor of three director nominees to SAFE's board who are independent of each of the Company and SAFE for three years;


•	subjects the Company to certain standstill provisions for two years;


•	restricts the Company's ability to transfer shares of SAFE common stock issued in exchange for Investor Units, or "Exchange Shares," for one year after their issuance;


•	prohibits the Company from transferring shares of SAFE common stock representing more than 20% of the outstanding SAFE common stock in one transaction or a series of related transactions to any person or group, other than pursuant to a widely distributed public offering, unless SAFE's other stockholders have participation rights in the transaction; and


•	provides the Company certain preemptive rights.

In March 2020, the Company acquired 1.7 million shares of SAFE's common stock in a private placement for $80.0 million.

A wholly-owned subsidiary of the Company is the external manager of SAFE and is entitled to a management fee. In addition, the Company is also the external manager of a venture in which SAFE is a member. Following are the key terms of the management agreement:


•	The Company receives a fee equal to 1.0% of total SAFE equity (as defined in the management agreement) up to $1.5 billion; 1.25% of total SAFE equity (for incremental equity of $1.5 billion - $3.0 billion); 1.375% of total SAFE equity (for incremental equity of $3.0 billion - $5.0 billion); and 1.5% of total SAFE equity (for incremental equity over $5.0 billion);


•	Fee to be paid in cash or in shares of SAFE common stock, at the discretion of SAFE's independent directors;


•	The stock is locked up for two years, subject to certain restrictions;


•	There is no additional performance or incentive fee;


•	The management agreement is non-terminable by SAFE through June 30, 2023, except for cause; and


•	Automatic annual renewals thereafter, subject to non-renewal upon certain findings by SAFE's independent directors and payment of termination fee equal to three times the prior year's management fee.

During the three months ended March 31, 2020 and 2019, the Company recorded $2.9 million and $1.5 million, respectively, of management fees pursuant to its management agreement with SAFE.

The Company is also entitled to receive certain expense reimbursements, including for the allocable costs of its personnel that perform certain legal, accounting, due diligence tasks and other services that third-party professionals or outside consultants otherwise would perform. The Company has waived or elected not to charge in full certain of the expense reimbursements while SAFE is growing its portfolio. For the three months ended March 31, 2020 and 2019, the Company recognized $1.3 million and $0.5 million, respectively, of expense reimbursements pursuant to its management agreement with SAFE.

The Company has an exclusivity agreement with SAFE pursuant to which it agreed, subject to certain exceptions, that it will not acquire, originate, invest in, or provide financing for a third party’s acquisition of, a Ground Lease unless it has first offered that opportunity to SAFE and a majority of its independent directors has declined the opportunity.

Following is a list of investments that the Company has transacted with SAFE, all of which were approved by the Company's and SAFE's independent directors, for the periods presented:

In August 2017, the Company committed to provide a $24.0 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan was for the renovation of a medical office building in Atlanta, GA. The Company funded $18.4 million of the loan, which was fully repaid in August 2019. During the three months ended March 31, 2019, the Company recorded $0.5 million of interest income on the loan.

In October 2017, the Company closed on a 99-year Ground Lease and a $80.5 million construction financing commitment to support the ground-up development of a to-be-built luxury multi-family project in San Jose, CA. The transaction includes a combination of: (i) a newly created Ground Lease and a $7.2 million leasehold improvement allowance, which was fully funded

as of March 31, 2020; and (ii) a $80.5 million leasehold first mortgage. As of March 31, 2020, $48.1 million of the leasehold first mortgage was funded. During the three months ended March 31, 2020 and 2019, the Company recorded $0.7 million and $0.1 million, respectively, of interest income on the loan. The Company entered into a forward purchase contract with SAFE under which SAFE would acquire the Ground Lease in November 2020 for approximately $34.0 million.

In May 2018, the Company provided a $19.9 million leasehold mortgage loan to the ground lessee of a Ground Lease originated at SAFE. The loan was for the acquisition of two multi-tenant office buildings in Atlanta, GA. The loan was repaid in full in November 2019 and during the three months ended March 31, 2019, the Company recorded $0.6 million of interest income on the loan.

In January 2019, the Company committed to provide a $13.3 million loan to the ground lessee of a Ground Lease originated at SAFE. The loan is for the conversion of an office building into a multi-family property in Washington, DC. As of March 31, 2020, $12.8 million of the loan was funded. During the three months ended March 31, 2020 and 2019, the Company recorded $0.3 million and $0.2 million, respectively, of interest income on the loan.

In February 2019, the Company acquired the leasehold interest in an office property and simultaneously entered into a new 98-year Ground Lease with SAFE (refer to Note 4).

Net Lease Venture II—In July 2018, the Company entered into a new venture ("Net Lease Venture II") with an investment strategy similar to the Net Lease Venture. The Net Lease Venture II has a right of first offer on all new net lease investments (excluding Ground Leases) originated by the Company. Net Lease Venture II's investment period ends in June 2021. Net Lease Venture II is a voting interest entity and the Company has an equity interest in the venture of approximately 51.9%. The Company does not have a controlling interest in Net Lease Venture II due to the substantive participating rights of its partner. The Company accounts for its investment in Net Lease Venture II as an equity method investment and is responsible for managing the venture in exchange for a management fee and incentive fee. During the three months ended March 31, 2020 and 2019, the Company recorded $0.4 million and $0.4 million, respectively, of management fees from Net Lease Venture II.

In December 2019, Net Lease Venture II closed on a commitment to provide up to $150.0 million in net lease financing for the construction of three industrial centers and entered into a 25 year master lease with the tenant. As of March 31, 2020, Net Lease Venture II had funded $47.8 million of its commitment.

In December 2019, Net Lease Venture II closed on the acquisition of two grocery distribution centers for $81.8 million, inclusive of assumed debt. The properties are 100% leased with two separate coterminous leveraged leases with 6.0 years remaining on the lease terms.

In December 2018, Net Lease Venture II acquired four buildings comprising 168,636 square feet located in Livermore, CA. Net Lease Venture II acquired the buildings for $31.2 million which are 100% leased with four separate leases that expire in December 2028.

Other real estate equity investments—As of March 31, 2020, the Company's other real estate equity investments include equity interests in real estate ventures ranging from 20% to 95%, comprised of investments of $60.0 million in operating properties and $36.7 million in land assets. As of December 31, 2019, the Company's other real estate equity investments included $61.7 million in operating properties and $42.9 million in land assets.

In August 2018, the Company provided a mezzanine loan with a principal balance of $33.0 million and $33.0 million as of March 31, 2020 and December 31, 2019, respectively, to an unconsolidated entity in which the Company owns a 50% equity interest. As of March 31, 2020 and December 31, 2019, the loan is included in "Loans receivable and other lending investments, net" on the Company's consolidated balance sheet. During the three months ended March 31, 2020 and 2019, the Company recorded $0.7 million and $0.7 million, respectively, of interest income on the mezzanine loan.

Other strategic investments—As of March 31, 2020 and December 31, 2019, the Company also had investments in real estate related funds and other strategic investments in real estate entities.

Summarized investee financial information—The following table presents the investee level summarized financial information of the Company's equity method investments that were significant as of March 31, 2020 ($ in thousands):



	Revenues		Expenses		Net Income Attributable to Parent
For the Three Months Ended March 31, 2020
SAFE	$	40,165	$	23,587	$	17,347

For the Three Months Ended March 31, 2019
SAFE	$	21,820	$	10,683	$	6,619