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Item 1A. Risk Factors

2021-02-23 compared with 2020-02-24 · 204 added, 220 removed, 192 unchanged (69% of the section changed)

In addition to the other information in this report, you should consider carefully the following risk factors in evaluating an investment in the Company's securities.

Any of these risks or the occurrence of any one or more of the uncertainties described below could have a material adverse effect on the Company's business, financial condition, results of operations, cash flows and market price of the Company's common stock.

The risks set forth below speak only as of the date of this report and the Company disclaims any duty to update them except as required by law.

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Risks Related to Our Business

Changes in general economic conditions and other factors outside our control may adversely affect our business.

Our success is generally dependent upon economic conditions in the United States, and in particular, the geographic areas in which our investments are located.

Substantially all businesses, including ours, were negatively affected by the previous economic recession and resulting illiquidity and volatility in the credit and commercial real estate markets.

The commercial real estate and credit markets remain volatile and sensitive to factors outside our control, including changes in interest rates, domestic political conditions, geopolitical conditions and other factors.

It is not possible for us to predict whether these trends will continue in the future or quantify the impact of these or other trends on our financial results.

Deterioration in any of such factors could have a material adverse effect on our financial performance, liquidity and our ability to meet our debt obligations.

Our credit ratings will impact our borrowing costs.

Our borrowing costs and our access to the debt capital markets depend significantly on our credit ratings.

Our unsecured corporate credit ratings from major national credit rating agencies are currently below investment grade.

Having below investment grade credit ratings makes our borrowing costs higher than they would be with an investment grade rating and makes restrictive covenants in our public debt instruments operative.

These restrictive covenants are described below in "Covenants in our indebtedness could limit our flexibility and adversely affect our financial condition."

Covenants in our indebtedness could limit our flexibility and adversely affect our financial condition.

Our outstanding unsecured debt securities contain corporate level covenants that include a covenant to maintain a ratio of unencumbered assets to unsecured indebtedness of at least 1.2x and a restriction on debt incurrence based upon the effect of the debt incurrence on our fixed charge coverage ratio, subject to certain permitted debt baskets.

If any of our covenants are breached and not cured within applicable cure periods, the breach could result in acceleration of our debt securities unless a waiver or modification is agreed upon with the requisite percentage of the bondholders.

Limitations on our ability to incur new indebtedness under the fixed charge coverage ratio may limit the amount of new investments we make.

Our revolving credit facility with a maximum capacity of $350.0 million (our "Revolving Credit Facility") and our $650.0 million senior term loan (our "Senior Term Loan") contain certain covenants, including covenants relating to collateral coverage, restrictions on fundamental changes, transactions with affiliates, matters relating to the liens granted to the lenders and the delivery of information to the lenders.

In particular, our Senior Term Loan requires the Company to maintain collateral coverage of at least 1.25x outstanding borrowings on the facility and our Revolving Credit Facility requires us to maintain both collateral coverage of at least 1.5x outstanding borrowings on the facility and a consolidated ratio of cash flow to fixed charges of at least 1.5x.

We may not pay common dividends if the Company is in default under the Senior Term Loan or the Revolving Credit Facility or would fail to comply with the covenants in such agreements after giving effect to the dividend.

Our Senior Term Loan and Revolving Credit Facility contain cross default provisions that would allow the lenders to declare an event of default and accelerate our indebtedness to them if we fail to pay amounts due in respect of our other recourse indebtedness in excess of specified thresholds or if the lenders under such other indebtedness are otherwise permitted to accelerate such indebtedness for any reason.

The indentures governing our unsecured public debt securities permit the bondholders to declare an event of default and accelerate our indebtedness to them if our other recourse indebtedness in excess of specified thresholds is not paid at final maturity or if such indebtedness is accelerated.

The covenants described above could limit our flexibility and make it more difficult and/or expensive to refinance our existing indebtedness.

A default by us on our indebtedness would have a material adverse effect on our business, liquidity and the market price of our common stock.

Our business and the growth of SAFE were adversely affected by the COVID-19 pandemic in 2020 and could be adversely affected in the future by the pandemic or the outbreak of any other highly infectious or contagious diseases.

The COVID-19 pandemic adversely affected our business and SAFE's growth in 2020 and could adversely affect our business and SAFE's growth in the future.

At this time, we cannot predict the full extent or duration of the impacts of the COVID-19 pandemic on our business and SAFE's growth prospects.

COVID-19 or another pandemic could adversely affect us due to, among other factors:

• closures of, or other operational issues at, one or more of our operating properties resulting from government or tenant action;

• the impact of reduced economic activity on our tenants' and borrowers' businesses, financial condition and liquidity, which have resulted in certain of our tenants or borrowers not meeting their obligations to us in full or at all and may do so in the future;

• the adverse impact of the pandemic on the entertainment/leisure and hotel sectors, which represent approximately 20.7% and 5.7%, respectively, of the gross book value of our investments as of December 31, 2020.

We entered into two lease modifications with a material tenant in the entertainment sector in 2020, as described in Note 5 to our consolidated financial statements.

There can be no assurance that tenant or borrower bankruptcies will not occur or that additional accommodations will not be made, in these and other sectors;

• the adverse impact of the pandemic on SAFE's hotel Ground Leases, which accounted for approximately 15.2% of SAFE's total revenues in 2020, excluding percentage rent, which accounted for approximately 2.5% of SAFE's total revenues in 2020;

we expect a material decline in percentage rent payable to SAFE in 2021 in respect of 2020 hotel operating performance;

• the decline in real estate transaction activity and constrained credit conditions which adversely affected our strategies of monetizing legacy assets and scaling SAFE's portfolio as its Manager in 2020 and may continue to do so while these conditions persist;

• the negative impact on our earnings from increased allowances against potential future losses and impairment charges and placing certain assets on accrual status;

• deteriorations in our financial condition, if they were to cause us to be unable to satisfy financial covenants in our debt obligations, which could trigger a default and acceleration of outstanding borrowings;

• the negative impacts on our operations if the health of a significant number of our employees were to be impacted by the pandemic;

• difficulty accessing debt and equity capital on attractive terms, or at all, to fund business operations or address maturing liabilities;

• delays in the supply of products or services that are needed for our tenants' and borrowers' efficient operations.

We have made a significant commitment to the Ground Lease business.

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In 2019, we announced that we would focus our business activities primarily on scaling SAFE's portfolio through our position as SAFE's largest stockholder and investment manager and by offering leasehold financing and equity to Ground Lease customers.

We have made a significant investment in SAFE's common stock and have dedicated a significant majority of our personnel to working on Ground Lease transactions.

We have made a significant investment in SAFE's common stock and have dedicated a significant majority of our personnel to working on growing the Ground Lease business.

As of December 31, 2020, we own approximately 65.4% of SAFE's outstanding common stock.

There is no assurance that we will be able to achieve our objectives for the Ground Lease business.

Our Ground Lease strategy is subject to a number of risks, including the following:

the size of the market for Ground Leases may not meet our estimates.

Potential tenants may prefer to own both the land and the improvements they intend to develop, rehabilitate or own.

Negative publicity about the experience of tenants with non-Safehold Ground Leases may also discourage potential tenants;

as and when interest rates increase, there may be less activity generally in real estate transactions, including leasing, development and financing, and less financing available for SAFE to refinance its debt obligations or for potential tenants to finance their leasehold interests;

if SAFE suffers adverse business developments, the market value of our investment in SAFE will likely decline and may decline materially, the management fees we receive from SAFE may not grow as anticipated and/or SAFE may reduce its distributions to stockholders, including us, all of which may adversely affect our stock price and our ability to pay distributions;

there are potential conflicts of interests in our relationship with SAFE, as discussed further below under "There are various conflicts of interest in our relationship with SAFE, including our executive officers and/or directors who are also officers and/or directors of SAFE, which could result in decisions that are not in the best interests of our stockholders";

• the size of the market for Ground Leases may not meet our growth objectives because, among other reasons, potential tenants may prefer to own both the land and the improvements they intend to develop, rehabilitate or own;

publicity about the experience of tenants with non-Safehold Ground Leases may discourage potential tenants;

interest rate increases may adversely affect the availability and terms of leasehold financing which is critical to the growth of a robust Ground Lease market;

the effects of the pandemic on commercial real estate trends, including the negative impacts of decreased travel on hotels and of work-from-home trends on urban office properties, which comprise a material portion of SAFE's portfolio;

• as and when interest rates increase, there may be less activity generally in real estate transactions, including leasing, development and financing, and less financing available on attractive terms for SAFE to refinance its debt obligations or for potential tenants to finance their leasehold interests;

• if SAFE suffers adverse business developments, the market value of our investment in SAFE will likely decline and may decline materially, the management fees we receive from SAFE may not grow as anticipated and/or SAFE may reduce its distributions to stockholders, including us;

• there are potential conflicts of interests in our relationship with SAFE, as discussed further below under "There are various potential conflicts of interest in our relationship with SAFE, including our executive officers and/or directors who are also officers and/or directors of SAFE, which could result in decisions that are not in the best interests of our stockholders;"

• we have waived or elected not to seek reimbursement in full for certain expenses that we have incurred on SAFE's behalf while it is in its growth stage, and will likely continue to do so while we foster SAFE's growth;

• if we terminate our management agreement with SAFE for convenience, we will be prohibited from competing with SAFE for one year after such termination.

We have significant indebtedness and funding commitments and limitations on our liquidity and ability to raise capital may adversely affect us.

Sufficient liquidity is critical to our ability to grow and to meet our scheduled debt payments, make additional investments in SAFE, pay distributions and satisfy funding commitments to borrowers.

We have relied on proceeds from the issuance of unsecured debt, secured borrowings, repayments from our loan assets and proceeds from asset sales to fund our operations and other activities, and we expect to continue to rely primarily on these sources of liquidity for the foreseeable future.

Our ability to access capital in 2020 and beyond will be subject to a number of factors, many of which are outside of our control, such as general economic conditions, changes in interest rates and conditions prevailing in the credit and real estate markets.

There can be no assurance that we will have access to liquidity when needed or on terms that are acceptable to us.

We may also encounter difficulty in selling assets or executing capital raising strategies on acceptable terms in a timely manner, which could impact our ability to make scheduled repayments on our outstanding debt.

Failure to repay or refinance our borrowings as they come due would be an event of default under the relevant debt instruments, which could result in a cross default and acceleration of our other outstanding debt obligations.

Failure to meet funding commitments could cause us to be in default of our financing commitments to borrowers.

Any of the foregoing could have a material adverse effect on our business, liquidity and the market price of our common stock.

We may utilize derivative instruments to hedge risk, which may adversely affect our borrowing cost and expose us to other risks.

The derivative instruments we may use are typically in the form of interest rate swaps, interest rate caps and foreign exchange contracts.

Interest rate swaps effectively change variable-rate debt obligations to fixed-rate debt obligations or fixed-rate debt obligations to variable-rate debt obligations.

Interest rate caps limit our exposure to rising interest rates.

Foreign exchange contracts limit or offset our exposure to changes in currency rates in respect of certain investments denominated in foreign currencies.

Our use of derivative instruments also involves the risk that a counterparty to a hedging arrangement could default on its obligation and the risk that we may have to pay certain costs, such as transaction fees or breakage costs, if a hedging arrangement is terminated by us.

As a matter of policy, we enter into hedging arrangements with counterparties that are large, creditworthy financial institutions typically rated at least "A/A2" by S&P and Moody's, respectively.

Developing an effective strategy for dealing with movements in interest rates and foreign currencies is complex and no strategy can completely insulate us from risks associated with such fluctuations.

There can be no assurance that any hedging activities will have the desired beneficial impact on our results of operations or financial condition.

Significant increases in interest rates could have an adverse effect on our operating results.

Our operating results depend in part on the difference between the interest and related income earned on our assets and the interest expense incurred in connection with our interest bearing liabilities.

Changes in the general level of interest rates prevailing in the financial markets will affect the spread between our interest earning assets and interest bearing liabilities subject to the impact of interest rate floors and caps, as well as the amounts of floating rate assets and liabilities.

Any significant compression of the spreads between interest earning assets and interest bearing liabilities could have a material adverse effect on us.

While interest rates remain low by historical standards, rates are generally expected to rise in the coming years, although there is no certainty as to the amount by which they may rise.

In the event of a significant rising interest rate environment, rates could exceed the interest rate floors that exist on certain of our floating rate debt and create a mismatch between our floating rate loans and our floating rate debt that could have a significant adverse effect on our operating results.

An increase in interest rates could also, among other things, reduce the value of our fixed-rate interest bearing assets and our ability to realize gains from the sale of such assets.

In addition, rising interest rates may adversely affect the value of our investment in SAFE.

Rising interest rates also tend to negatively impact the residential mortgage market, which in turn may adversely affect the value of and demand for our land assets, including our residential development projects.

Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control.

Changes in the method for determining LIBOR or a replacement of LIBOR may affect the value of the financial obligations to be held or issued by us that are linked to LIBOR and could affect our results of operations or financial condition.

In July 2017, the U.K.

Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021.

We are unable to predict the effect of any changes, any establishment of alternative reference rates or any other reforms to LIBOR or any replacement of LIBOR that may be enacted in the United Kingdom or elsewhere.

Such changes, reforms or replacements relating to LIBOR could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, derivatives and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or results of operations.

We are required to make a number of judgments in applying accounting policies, and different estimates and assumptions could result in changes to our financial condition and results of operations.

Material estimates that are particularly susceptible to significant change underlie our determination of the reserve for loan losses, which is based primarily on the estimated fair value of loan collateral, as well as the valuation of real estate assets and deferred tax assets.

While we have identified those accounting policies that are considered critical and have procedures in place to facilitate the associated judgments, different assumptions in the application of these policies could have a material adverse effect on our financial performance and results of operations and actual results may differ materially from our estimates.

The carrying values of our assets held for investment are not determined based upon the prices at which they could be sold currently.

As discussed further in the notes to our consolidated financial statements, we record our real estate and land and development assets at cost less accumulated depreciation and amortization.

If we hold a property for use or investment, we will only review it for impairment in value if events or changes in circumstances indicate that the carrying amount of the property may not be recoverable, based on management's determination that the aggregate future cash flows to be generated by the asset (taking into account the anticipated holding period of the asset) is less than the carrying value.

Management's estimates of cash flows considers factors such as expected future operating income trends, as well as the effects of demand, competition and other economic factors.

The carrying values of our real estate and land and development assets are not indicative of the prices at which we would be able to sell the properties, if we had to do so before the end of their intended holding period.

If we changed our investment intent and decided to sell a property that was being held for investment, including in distressed circumstances as a means of raising liquidity, there can be no assurance that we would not realize losses on such sales, which losses could have a material adverse effect on our business, financial results, liquidity and the market price of our common stock.

We intend to accelerate the monetization of assets in our legacy portfolio.

We continue to hold other legacy assets for investment, and there can be no assurance that we will not recognize impairment on such assets, or non-legacy assets in the future.

Changes in accounting rules will affect our financial reporting.

The Financial Accounting Standards Board ("FASB") has issued new accounting standards that will affect our financial reporting.

In June 2016 , the FASB issued ASU 2016-13, Financial Instruments—Credit Losses:

Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") which was issued to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments held by a reporting entity.

This amendment replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019.

On January 1, 2020, upon the adoption of ASU 2016-13, we expect to record an increase to our general reserve of approximately $12.0 million on our loan portfolio and our net investment in leases, which will be recorded as a decrease to shareholders' equity on January 1, 2020.

Changes in accounting standards could affect the comparability of our reported results with prior periods and our ability to comply with financial covenants under our debt instruments.

We may also need to change our accounting systems and processes to enable us to comply with the new standards, which may be costly.

For additional information regarding new accounting standards, refer to Note 3 to our consolidated financial statements under the heading "New accounting pronouncements."

Our reserves for loan losses may prove inadequate, which could have a material adverse effect on our financial results.

We maintain loan loss reserves to offset potential future losses.

Our general loan loss reserve reflects management's then-current estimation of the probability and severity of losses within our portfolio.

In addition, our determination of asset-specific loan loss reserves relies on material estimates regarding the fair value of loan collateral.

Estimation of ultimate loan losses, provision expenses and loss reserves is a complex and subjective process.

As such, there can be no assurance that management's judgment will prove to be correct and that reserves will be adequate over time to protect against potential future losses.

Such losses could be caused by factors including, but not limited to, unanticipated adverse changes in the economy or events adversely affecting specific assets, borrowers, industries in which our borrowers operate or markets in which our borrowers or their properties are located.

In particular, during the previous financial crisis, the weak economy and disruption of the credit markets adversely impacted the ability and willingness of many of our borrowers to service their debt and refinance our loans to them at maturity.

If our reserves for credit losses prove inadequate we may suffer additional losses which would have a material adverse effect on our financial performance, liquidity and the market price of our common stock.

We have suffered losses when a borrower defaults on a loan and the underlying collateral value is not sufficient, and we may suffer additional losses in the future.

We have suffered losses arising from borrower defaults on our loan assets and we may suffer additional losses in the future.

SAFE is a public company that files separately with the Securities and Exchange Commission ("SEC").

In its filings with the SEC, SAFE provides disclosure as to its business, including disclosure regarding its views as to the drivers of its financial performance and the risks it faces.

SAFE's SEC filings also include certifications and disclosure regarding internal controls over financial reporting and disclosure controls.

We are subject to risks relating to our concentrations in certain asset types, geographies and sectors.

Our portfolio consists primarily of real estate, commercial real estate loans and our investment in SAFE.

Refer to "Item 7.

Management's Discussion and Analysis - Portfolio Overview" for a breakdown of our asset concentrations by property type and geographic location.

In addition, our largest tenant, representing a net lease tenant in the entertainment/leisure sector, constituted 11.6% of our total revenues for the year ended December 31, 2020.

Through our investment in SAFE, we are also exposed to asset concentrations in SAFE's portfolio.

For the year ended December 31, 2020, 17.7% of SAFE's total revenues came from hotel properties and one of SAFE's tenants, under an office property Ground Lease in Washington, DC, represented more than 10% of its revenues for the year.

Many property types were adversely affected by the COVID-19 pandemic and the previous economic recession and we may suffer additional losses on our assets due to these concentrations during periods of economic distress that affect these concentrations.

There are various potential conflicts of interest in our relationship with SAFE, including our executive officers and/or directors who are also officers and/or directors of SAFE, which could result in decisions that are not in the best interest of our stockholders.

There are various potential conflicts of interest in our relationship with SAFE, including our executive officers and/or directors who are also directors or officers of SAFE.

Conflicts may include, without limitation:

conflicts arising from the enforcement of agreements between us and SAFE;

conflicts in the amount of time that our officers and employees will spend on SAFE's affairs vs.

our other affairs;

conflicts in determining whether to seek reimbursement from SAFE of certain expenses we incur on its behalf;

conflicts in transactions that we pursue with SAFE;

conflicts between the interests of our stockholders and members of our management who hold SAFE common stock and other equity interests in SAFE such as grants of interests in a subsidiary of SAFE's operating partnership (called CARET units) that will entitle them to participate in distributions arising from certain sales and financings of SAFE's Ground Leases;

and conflicts in allocating investments to, and managing, a potential investment fund in which we and SAFE would invest, as discussed further below.

Transactions between iStar and SAFE are subject to certain approvals of our independent directors;

however, there can be no assurance that such approval will be successful in achieving terms and conditions as favorable to us as would be available from a third party.

Two directors of iStar also serve on SAFE's board of directors, including Jay Sugarman, who is the chief executive officer of SAFE and our chief executive officer.

Our directors and executive officers have duties to our company under applicable Maryland law, and our executive officers and our directors who are also directors or officers of SAFE have duties to SAFE under applicable Maryland law.

Those duties may come in conflict from time to time.

We have duties as the manager of SAFE which may come in conflict with our duties to our stockholders from time to time.

In addition, conflicts of interest may

exist or could arise in the future with our duties to Net Lease Venture II and our duties to SAFE as its manager in connection with future investment opportunities.

We are considering the formation of an investment fund in which we and SAFE would invest which would target the origination and acquisition of Ground Leases for commercial real estate projects that are in a pre-development phase, unlike the later stage development Ground Leases that fit SAFE's investment criteria.

We may face conflicts of interest in fulfilling our duties to our stockholder, to SAFE as its manager and to the fund as its general partner and manager.

We would b e responsible for identifying and appropriately allocating investments between the fund and SAFE.

In addition, iStar would be involved in establishing the price and the conditions of any future potential purchases of assets by SAFE from any such fund.

The fund's fee structure could potentially be more favorable to us than the management fees we receive from SAFE.

If we fail to deal appropriately with these and other conflicts, our business could be adversely affected.

Transactions between iStar and SAFE were negotiated between related parties and their terms may not be as favorable to us as if they had been negotiated with an unaffiliated third party.

In addition, we may choose not to enforce, or to enforce less vigorously, our rights under agreements with SAFE because of our desire to maintain our ongoing relationship with SAFE.

See Note 8 to our financial statements for a discussion of related party transactions between SAFE and us in 2020.

Our voting power in SAFE is subject to limitations, and joint venture and other investments we hold or may make in the future may not provide us with full control.

Although we own approximately 65.4% of the outstanding common stock of SAFE as of December 31, 2020, we are party to a stockholder's agreement with SAFE that generally limits the discretionary voting power of our shares to 41.9% and requires that we vote shares in excess of that amount in proportion to the votes of SAFE's other stockholders on matters presented for approval.

As a result of such limitations, actions may be approved by SAFE's board and stockholders with which we do not agree.

We have a joint venture partner in our Net Lease Ventures and we hold equity investments in certain funds and limited partnerships managed by third parties.

These and other investments we may make in the future present risks that we may have differing objectives than our partners or the managers, board of directors, shareholders or other members in such investments, that we may become involved in disputes with them and that we may compete with such entities.

In addition, we rely on the internal controls and financial reporting controls of these entities and their failure to maintain effectiveness or comply with applicable standards may adversely affect us.

Although the businesses in which we have invested generally have a significant real estate component, some of them may operate in businesses that are different from our primary or historical business segments.

Consequently, investments in these businesses, among other risks, subject us to the operating and financial risks of new business lines or industries other than real estate and to the risk that we do not have sole control over the operations of these businesses.

We have acquired, and may in the future acquire, commercial properties with the intent to sell the land to SAFE and to sell or lease the leasehold interest to a third party.

If we are unable to sell or lease the leasehold interest, we will be exposed to the risks of ownership of operating properties.

We have acquired, and may in the future acquire, commercial properties with the intent to separate the property into an ownership interest in land that is sold to SAFE and an interest in the buildings and improvements thereon that is sold or leased to a third party.

There may be instances where we are unable to find a purchaser or lessee for the improvements, in which case we will be subject to the risks of owning operating properties.

The ownership and operation of commercial properties will expose us to risks, including, without limitation:

• adverse changes in international, regional or local economic and demographic conditions;

• tenant vacancies and market pressures to offer tenant incentives to sign or renew leases;

• adverse changes in the financial position or liquidity of tenants;

• the inability to collect rent from tenants;

• tenant bankruptcies;

• higher costs resulting from capital expenditures and property operating expenses;

• civil disturbances, hurricanes and other natural disasters, or terrorist acts or acts of war, which may result in uninsured or underinsured losses;

• liabilities under environmental laws;

• risks of loss from casualty or condemnation;

• changes in, and changes in enforcement of, laws, regulations and governmental policies, including, without limitation, health, safety, environmental, zoning and tax laws;

• the other risks described under "We are subject to additional risks associated with owning and developing property."

Upon taking ownership of a commercial property, we may be required to contribute ownership of the land to a taxable REIT subsidiary ("TRS"), which would subsequently seek to sell the land to SAFE and lease or sell a leasehold interest in such commercial property to a third party.

Any gain from the sale of land would be subject to corporate income tax.

We have recognized losses when a borrower defaults on a loan and the underlying collateral value is not sufficient, and we may recognize additional losses in the future.

We have recognized losses arising from borrower defaults on our loan assets and we may recognize additional losses in the future.

In the event of a default by a borrower on a non-recourse loan, we will only have recourse to the real estate-related assets collateralizing the loan.

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If a borrower is unable to repay our loan at maturity, we could suffer additional loss which may adversely impact our financial performance.

We may acquire a commercial property with the intent to sell the land to SAFE and to sell or lease the leasehold interest to a third party.

If we are unable to sell or lease the leasehold interest, we will be exposed to the risks of ownership of operating properties.

We may acquire commercial properties with the intent to separate the property into an ownership interest in land that is sold to SAFE and an interest in the buildings and improvements thereon that is sold or leased to a third party.

There may be instances where we are unable to find a purchaser or lessee for the improvements, in which case we will be subject to the risks of owning operating properties.

The ownership and operation of commercial properties will expose us to risks, including, without limitation:

adverse changes in international, regional or local economic and demographic conditions;

tenant vacancies and market pressures to offer tenant incentives to sign or renew leases;

adverse changes in the financial position or liquidity of tenants;

the inability to collect rent from tenants;

tenant bankruptcies;

higher costs resulting from capital expenditures and property operating expenses;

civil disturbances, hurricanes and other natural disasters, or terrorist acts or acts of war, which may result in uninsured or underinsured losses;

liabilities under environmental laws;

risks of loss from casualty or condemnation;

changes in, and changes in enforcement of, laws, regulations and governmental policies, including, without limitation, health, safety, environmental, zoning and tax laws;

the other risks described under "We are subject to additional risks associated with owning and developing property."

Any gain from the sale of land would be subject to corporate income tax.

We are subject to additional risks associated with loan participations.

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We are subject to additional risk associated with owning and developing real estate.

We own a number of assets that previously served as collateral on defaulted loans.

These assets are predominantly land and development assets and operating properties.

As of December 31, 2020, we own approximately $430.7 million of land and development assets and $197.6 million of operating properties, based on net carrying values.

These assets expose us to additional risks, including, without limitation:

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• The values of our real estate investments are subject to a number of factors outside of our control, including changes in the general economic climate, changes in interest rates and the availability of attractive financing, over-building or decreasing demand in the markets where we own assets, and changes in law and governmental regulations.

The residential market has experienced significant downturns that could recur and adversely affect us.

The residential market has previously experienced significant downturns that could recur and adversely affect us.

As of December 31, 2020, we owned land and residential condominiums with a net carrying value of $435.9 million.

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We underwrite the credit of prospective borrowers and tenants and often require them to provide some form of credit support such as corporate guarantees, letters of credit and/or cash security deposits.

Although our loans and real estate assets are

geographically diverse and the borrowers and tenants operate in a variety of industries, to the extent we have a significant concentration of interest or operating lease revenues from any single borrower or customer, the inability of that borrower or tenant to make its payment could have a material adverse effect on us.

Although our loans and real estate assets are geographically diverse and the borrowers and tenants operate in a variety of industries, to the extent we have a significant concentration of interest or operating lease revenues from any single borrower or customer, the inability of that borrower or tenant to make its payment could have a material adverse effect on us.

For the year ended December 31, 2020, our five largest borrowers or tenants of net lease assets collectively accounted for approximately 21.4% of our revenues, of which our largest customer accounted for approximately 11.6%.

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In any of the foregoing circumstances, our financial performance could be materially adversely affected.

We are subject to risks relating to our asset concentration.

Our portfolio consists primarily of real estate, commercial real estate loans and our investment in SAFE.

Refer to "Item 7.

Management's Discussion and Analysis - Portfolio Overview" for our asset concentrations by property type and geographic location.

In addition, our largest tenant represented 11.8% of our total revenues for the year ended December 31, 2019.

Through our investment in SAFE, we are also exposed to asset concentrations in SAFE's portfolio.

For the year ended December 31, 2019, 19.6% of SAFE's total revenues came from hotel properties and two of SAFE's tenants individually represented more than 10% of its revenues for the year, the tenant of its Ground Lease at 1111 Pennsylvania Avenue in Washington D.C.

and the tenant of its Park Hotels Portfolio.

Many property types were adversely affected by the previous economic recession and we may suffer additional losses on our assets due to these concentrations.

Lease expirations, lease defaults and lease terminations may adversely affect our revenue.

Lease expirations and lease terminations may result in reduced revenues if the lease payments received from replacement tenants are less than the lease payments received from the expiring or terminating corporate tenants.

In addition, lease defaults or lease terminations by one or more significant tenants or the failure of tenants under expiring leases to elect to renew their leases could cause us to experience long periods of vacancy with no revenue from a facility and to incur substantial capital expenditures and/or lease concessions in order to obtain replacement tenants.

expenditures and/or lease concessions in order to obtain replacement tenants.

Leases representing approximately 16.7% of our annualized in-place operating lease income and interest income from sales-type leases are scheduled to expire during the next five years.

We compete with a variety of financing and leasing sources for our customers.

We and SAFE compete with a variety of financing and leasing sources for our customers.

The financial services industry and commercial real estate markets are highly competitive and have become more competitive in recent years.

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Weather conditions and man-made or natural disasters such as hurricanes, tornadoes, earthquakes, floods, droughts, fires and other environmental conditions can damage properties we own.

As of December 31, 2019 , approximately 18.2% of the carrying value of our assets was located in the western and northwestern United States, geographic areas at higher risk for earthquakes.

As of December 31, 2020, approximately 17.2% of the carrying value of our assets was located in the western United States, geographic areas at higher risk for earthquakes.

Additionally, we own properties located near the coastline and the value of our properties will potentially be subject to the risks associated with long-term effects of climate change.

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Although we believe our owned real estate and the properties collateralizing our loan assets are adequately covered by insurance, we cannot predict at this time if we or our borrowers will be able to obtain appropriate coverage at a reasonable cost in the future, or if we will be able to continue to pass along all of the costs of insurance to our tenants.

The foregoing risks also apply generally to SAFE's properties and the buildings thereon owned by SAFE's tenants.

The foregoing risks also apply generally to SAFE's properties

and the buildings thereon owned by SAFE's tenants.

Any weather conditions, man-made or natural disasters, terrorist attack or effect of climate change, whether or not insured, could have a material adverse effect on our or SAFE's financial performance, liquidity and the market price of our or SAFE's common stock.

In addition, there is a risk that one or more of our property insurers may not be able to fulfill their obligations with respect to claims payments due to a deterioration in its financial condition.

Transactions between iStar and SAFE were negotiated between related parties and their terms may not be as favorable to us as if they had been negotiated with an unaffiliated third party.

In addition, we may choose not to enforce, or to enforce less vigorously, our rights under agreements with SAFE because of our desire to maintain our ongoing relationship with SAFE.

Conflicts of interest may exist or could arise in the future with SAFE, including our executive officers and/or directors who are also directors or officers of SAFE.

Conflicts may include, without limitation:

conflicts arising from the enforcement of agreements between us and SAFE;

conflicts in the amount of time that our officers and employees will spend on our affairs versus SAFE's affairs;

conflicts in determining whether to seek reimbursement from SAFE of certain expenses we incur on its behalf;

and conflicts in future transactions that we may pursue with SAFE.

Transactions between iStar and SAFE would be subject to certain approvals of our independent directors;

however, there can be no assurance that such approval will be successful in achieving terms and conditions as favorable to us as would be available from a third party.

Two directors of iStar also serve on SAFE's our board of directors, including Jay Sugarman, who is the chief executive officer of SAFE and our chief executive officer.

Those duties may come in conflict from time to time.

We have duties as the manager of SAFE which may come in conflict with our duties to our stockholders from time to time.

In addition, conflicts of interest may exist or could arise in the future with our duties to Net Lease Venture II and our duties to SAFE as its manager in connection with future investment opportunities.

From time to time we make investments in companies over which we do not have control.

Some of these companies operate in industries that differ from our current operations, with different risks than investing in real estate.

From time to time we make debt or equity investments in other companies that we may not control or over which we may not have sole control, including SAFE and our Net Lease Venture II.

Although these businesses generally have a significant real estate component, some of them may operate in businesses that are different from our primary or historical business segments.

From time to time we may make additional investments in or acquire other entities that may subject us to similar risks.

Investments in entities over which we do not have sole control, including SAFE and our Net Lease Venture II, present additional risks such as having differing objectives than our partners or the entities in which we invest, or becoming involved in disputes, or competing with those persons.

Declines in the market values of our equity investments that are not publicly traded may adversely affect periodic reported results.

Certain of our equity investments other than SAFE, are in funds or companies that are not publicly traded and their fair value may not be readily determinable.

As of December 31, 2020, the aggregate carrying value of such investments represented 4.9% of our assets.

We may periodically estimate the fair value of these investments, based upon available information and management's judgment.

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In addition, our determinations regarding the fair value of these investments may be materially higher than the values that we ultimately realize upon their disposal, which could result in losses that have a material adverse effect on our financial performance, the market price of our common stock and our ability to pay dividends.

Quarterly results may fluctuate and may not be indicative of future quarterly performance.

Our quarterly operating results could fluctuate;

therefore, reliance should not be placed on past quarterly results as indicative of our performance in future quarters.

Factors that could cause quarterly operating results to fluctuate include, among others, variations in SAFE's performance and the market price of its common stock, variations in loan and real estate portfolio performance, levels of non-performing assets and related provisions, market values of investments, costs associated with debt, general economic conditions, the state of the real estate and financial markets and the degree to which we encounter competition in our markets.

Our ability to retain and attract key personnel is critical to our success.

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We rely in part on equity compensation to retain and incentivize our personnel.

In addition, if members of our management join competitors or form competing companies, the competition could have a material adverse effect on our business.

In addition, if members of our management join competitors or form competing companies, the competition could have a material adverse effect on our business or SAFE's business.

Efforts to retain or attract professionals may result in additional compensation expense, which could affect our financial performance.

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Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disrupt our operations and the services we provide to customers, and damage our reputation, which could have a material adverse effect on our business.

Financing Risks

Our credit ratings will impact our borrowing costs.

Our borrowing costs and our access to the debt capital markets depend significantly on our credit ratings.

Our unsecured corporate credit ratings from major national credit rating agencies are currently below investment grade.

Having below investment grade credit ratings makes our borrowing costs higher than they would be with an investment grade rating and makes restrictive covenants in our public unsecured debt securities operative.

These restrictive covenants are described below in "Covenants in our indebtedness could limit our flexibility and adversely affect our financial condition."

Covenants in our indebtedness could limit our flexibility and adversely affect our financial condition.

Limitations on our ability to incur new indebtedness under the fixed charge coverage ratio may limit the amount of new investments we make.

coverage, restrictions on fundamental changes, transactions with affiliates, matters relating to the liens granted to the lenders and the delivery of information to the lenders.

The covenants described above could limit our flexibility and make it more difficult and/or expensive to refinance our existing indebtedness.

A default by us on our indebtedness would have a material adverse effect on our business, liquidity and the market price of our common stock.

We have significant indebtedness and funding commitments and limitations on our liquidity and ability to raise capital may adversely affect us.

Sufficient liquidity is critical to our ability to grow and to meet our scheduled debt payments, make additional investments in SAFE, pay distributions and satisfy funding commitments to borrowers.

Our ability to access capital in 2021 and beyond will be subject to a number of factors, many of which are outside of our control, such as general economic conditions, changes in interest rates and conditions prevailing in the credit and real estate markets.

There can be no assurance that we will have access to liquidity when needed or on terms that are acceptable to us.

Failure to meet funding commitments could cause us to be in default of our financing commitments to borrowers.

Any of the foregoing could have a material adverse effect on our business, liquidity and the market price of our common stock.

We utilize derivative instruments to hedge risk, which may adversely affect our borrowing cost and expose us to other risks.

The derivative instruments we use are typically in the form of interest rate swaps, interest rate caps and foreign exchange contracts.

Our use of derivative instruments involves the risk that a counterparty to a hedging arrangement could default on its obligation and the risk that we may have to pay certain costs, such as transaction fees or breakage costs, if a hedging arrangement is terminated by us.

There can be no assurance that any hedging activities will have the desired beneficial impact on our results of operations or financial condition.

Significant increases in interest rates could have an adverse effect on our operating results.

Any significant compression of the spreads between interest earning assets and interest bearing liabilities could have a material adverse effect on us.

While interest rates remain low by historical standards, rates are generally expected to rise in the coming years, although there is no certainty as to the amount by which they may rise.

An increase in interest rates could also, among other things, reduce the value of our fixed-rate interest bearing assets and our ability to realize gains from the sale of such assets.

In addition, rising interest rates may adversely affect the value of our investment in SAFE.

The replacement of LIBOR may affect the value of certain of our financial obligations and could affect our results of operations or financial condition.

In July 2017, the U.K.

Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021.

In December 2020, ICE Benchmark Association, the administrator of LIBOR, published a consultation regarding its intention to cease publication of U.S.

dollar LIBOR after June 2023.

As of December 31, 2020, approximately 25.8% of the total principal amount of our outstanding debt was floating rate debt.

We are unable to predict the timing or effect of any changes, any establishment of alternative reference rates or any other reforms to LIBOR or any replacement of LIBOR that may be enacted in the United States, the United Kingdom or elsewhere.

Such changes, reforms or replacements relating to LIBOR could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, derivatives and other financial obligations or extensions of credit held by or due to us on our overall financial condition or results of operations.

Risks Relating to Our Accounting and Valuation Estimates

We are required to make a number of judgments in applying accounting policies, and different estimates and assumptions could result in changes to our financial condition and results of operations.

Material estimates that are particularly susceptible to significant change underlie our determination of the allowance for loan losses, which is based primarily on the estimated fair value of loan collateral and our estimate of expected credit losses, as well as the valuation of real estate assets and deferred tax assets.

While we have identified those accounting policies that we consider to be critical and have procedures in place to facilitate the associated judgments, different assumptions in the application of these policies could have a material adverse effect on our financial performance and results of operations and actual results may differ materially from our estimates.

The carrying values of our assets held for investment are not determined based upon the prices at which they could be sold currently.

As discussed further in the notes to our consolidated financial statements, we record our real estate and land and development assets at cost less accumulated depreciation and amortization.

Management's estimates of cash flows considers factors such as expected future operating income trends, as well as the effects of demand, competition and other economic factors.

We intend to accelerate the monetization of assets in our legacy portfolio.

We continue to hold other legacy assets for investment, and there can be no assurance that we will not recognize impairment on such assets, or non-legacy assets in the future.

Our allowances for loan losses and net investment in leases may prove inadequate, which could have a material adverse effect on our financial results.

We maintain allowances for our loan and net investment in lease portfolios to offset potential future losses.

Our loss allowances reflect management's then-current estimation of the probability and severity of losses within our portfolio.

In addition, our determination of asset-specific allowances relies on material estimates regarding the fair value of loan collateral.

Estimation of ultimate losses, provision expenses and loss allowances is a complex and subjective process.

As such, there can be no assurance that management's judgment will prove to be correct and that allowances will be adequate over time to protect against potential future losses.

Such losses could be caused by factors including, but not limited to, unanticipated adverse changes in the economy or events adversely affecting specific assets, borrowers, tenants, industries in which our borrowers or tenants operate or markets in which our borrowers/tenants or their properties are located.

If our allowances for credit losses prove inadequate we may suffer additional losses which would have a material adverse effect on our financial performance, liquidity and the market price of our common stock.

Risks Relating to our Organization and Structure

We may change certain of our policies without stockholder approval.

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A change in these policies could have a material adverse effect on our financial performance, liquidity and the market price of our common stock.

Certain provisions in our charter may inhibit a change in control.

Generally, to maintain our qualification as a REIT under the Code, not more than 50% in value of our outstanding shares of stock may be owned, directly or indirectly, by five or fewer individuals at any time during the last half of our taxable year.

The Code defines "individuals" for purposes of the requirement described in the preceding sentence to include some types of entities.

Under our charter, no person may own more than 9.8% of our outstanding shares of stock, with some exceptions.

The restrictions on transferability and ownership may delay, deter or prevent a change in control or other transaction that might involve a premium price or otherwise be in the best interest of the security holders.

Certain provisions of Maryland law and our organizational documents could inhibit changes in control of our company.

Certain provisions of Maryland law and our organizational documents could inhibit changes in control of our company that might involve a premium price for our common stock or that our shareholders otherwise believe to be in their best interest, including, among others, the following:

• Pursuant to the Maryland General Corporation Law, or the MGCL, our board of directors has by resolution exempted business combinations between us and any other person from the business combination provisions of the MGCL, and our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of shares of our stock.

However, there can be no assurance that these exemptions will not be amended or eliminated at any time in the future.

• Our charter generally prohibits any person from directly or indirectly owning more than 9.8% in value or number of shares, whichever is more restrictive, of our outstanding capital stock.

• Our board of directors, without stockholder approval, has the power under our charter to amend our charter from time to time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue, to authorize us to issue authorized but unissued shares of our common stock or preferred stock and to classify or reclassify any unissued shares of our common stock or preferred stock into one or more classes or series of stock and set the terms of such newly classified or reclassified shares.

As a result, our board of directors could establish a class or series of preferred stock that could, depending on the terms of such series, delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or that our shareholders otherwise believe to be in their best interest.

Our Investment Company Act exemption limits our investment discretion and loss of the exemption would adversely affect us.

We believe that we currently are not, and we intend to operate our company so that we will not be, regulated as an investment company under the Investment Company Act.

We believe we are not an investment company under Section 3(a)(1)(A) of the Investment Company Act because we do not engage primarily, or hold ourselves out as being engaged primarily, in the business of investing, reinvesting or trading in securities.

The Company engages primarily in the non-investment company businesses of investing in, financing and developing real estate and real estate-related projects, generally through subsidiaries and affiliated companies, including SAFE.

Maintaining our exemption from regulation as an investment company under the Investment Company Act limits our ability to invest in assets that otherwise would meet our investment strategies.

We will need to monitor our investments and income to ensure that we continue to satisfy our exemption from the Investment Company Act, but there can be no assurance that we will be able to avoid the need to register as an Investment Company.

If it were established that we were an unregistered investment company, there would be a risk that we would be subject to monetary penalties and injunctive relief in an action brought by the SEC, that we would be unable to enforce contracts with third parties, or that third parties could seek to obtain rescission of transactions and that we would be subject to limitations on corporate leverage that would have an adverse impact on our investment returns.

This would have a material adverse effect on our financial performance and the market price of our securities.

Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for some litigation, which could limit the ability of stockholders to obtain a favorable judicial forum for disputes with our company.

Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for:

(a) any derivative action or proceeding brought on our behalf;

(b) any action asserting a claim of breach of any duty owed by us or by any director or officer or other employee to us or to our stockholders;

(c) any action asserting a claim against us or any director or officer or other employee arising pursuant to any provision of the Maryland General Corporation Law or our charter or bylaws;

or (d) any action asserting a claim against us or any director or officer or other employee that is governed by the internal affairs doctrine shall be the Circuit Court for Baltimore City, Maryland, or, if that Court does not have

jurisdiction, the United States District Court for the District of Maryland, Baltimore Division.

This forum selection provision may limit the ability of stockholders of our company to obtain a judicial forum that they find favorable for disputes with our company or our directors, officers, employees, if any, or other stockholders.

Tax Risks Related to Ownership of Our Shares

We would be subject to adverse consequences if we fail to qualify as a REIT.

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In order to qualify as a REIT and avoid the payment of income and excise taxes, we may need to borrow funds or take other actions to meet our REIT distribution requirements for the taxable year in which the phantom income is recognized.

Complying with the REIT requirements may cause us to forego and/or liquidate otherwise attractive investments.

In order to meet the income, asset and distribution tests under the REIT rules, we may be required to take or forego certain actions.

For instance, we may not be able to make certain investments and we may have to liquidate other investments.

In addition, we may be required to make distributions to shareholders at disadvantageous times or when we do not have funds readily available for distribution.

These actions could have the effect of reducing our income and amounts available for distribution to our shareholders.

Certain of our business activities may potentially be subject to the prohibited transaction tax, which could reduce the return on your investment.

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Whether property is inventory or otherwise held primarily for sale depends on the particular facts and circumstances.

The Code provides a safe harbor that, if met, allows a REIT to avoid being treated as engaged in a prohibited transaction.

The Code provides a safe harbor that, if met, allows a REIT to avoid being treated as engaged in a prohibited

No assurance can be given that any property that we sell will not be treated as property held for sale to customers, or that we can comply with the safe harbor.

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We have substantial net operating loss carryforwards which we use to offset our tax and distribution requirements.

Net operating losses that have arisen in taxable years beginning after December 31, 2017 and thereafter are only able to offset up to 80% of our net taxable income (after the application of the dividends paid deduction) and may not be carried back.

Net operating losses that have arisen in taxable years beginning after December 31, 2017 and thereafter may offset up to 80% of our net taxable income (after the application of the dividends paid deduction), except to the extent those losses are utilized in taxable years prior to 2021, and may not be carried back.

In the event that we experience an "ownership change" for purposes of Section 382 of the Code, our ability to use these losses will be limited.

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We are entitled to rely upon this private letter ruling only to the extent that we did not misstate or omit a material fact in the ruling request and that we continue to operate in accordance with the material facts described in such request, and no assurance can be given that we will always be able to do so.

To the extent that any loan is recharacterized as equity, it would increase the amount of non-real estate securities that we have

in our TRS and could adversely affect our ability to meet the limitation described above.

To the extent that any loan is recharacterized as equity, it would increase the amount of non-real estate securities that we have in our TRS and could adversely affect our ability to meet the limitation described above.

If we were not able to exclude such loans to our TRS from the limitation described above, our ability to meet the REIT asset tests and other REIT requirements could be adversely affected.

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federal tax laws could adversely affect an investment in our common stock.

The Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, made significant changes to the U.S.

federal income tax laws applicable to businesses and their owners, including REITs and their stockholders.

Certain key provisions of the Tax Cuts and Jobs Act that could impact us and our stockholders include the following:

Reduced Tax Rates.

The highest individual U.S.

federal income tax rate on ordinary income is reduced from 39.6% to 37% (through taxable years ending in 2025), and the maximum corporate income tax rate is reduced from 35% to 21%.

In addition, individuals, trust, and estates that own our stock are permitted to deduct up to 20% of dividends received from us (other than dividends that are designated as capital gain dividends or qualified dividend income), generally resulting in an effective maximum U.S.

federal income tax rate of 29.6% on such dividends (through taxable years ending in 2025).

Further, the amount that we are required to withhold on distributions to non-U.S.

stockholders that are treated as attributable to gains from our sale or exchange of U.S.

real property interests is reduced from 35% to 21%.

Net Operating Losses.

We and our TRSs may not use net operating losses generated beginning in 2018 to offset more than 80% of our taxable income (determined without regard to the dividends paid deduction).

Net operating losses generated beginning in 2018 can be carried forward indefinitely but can no longer be carried back.

Limitation on Interest Deductions.

The amount of net interest expense that certain taxpayers, including us and our TRSs, may deduct for a taxable year is limited to the sum of:

(i) the taxpayer's business interest income for the taxable year;

and (ii) 30% of the taxpayer's "adjusted taxable income" for the taxable year.

For taxable years beginning before January 1, 2022, adjusted taxable income means earnings before interest, taxes, depreciation, and amortization ("EBITDA");

for taxable years beginning on or after January 1, 2022, adjusted taxable income is limited to earnings before interest and taxes ("EBIT").

Certain electing businesses, including electing real estate businesses, may elect out of the foregoing limitation.

Alternative Minimum Tax.

The corporate alternative minimum tax is eliminated.

Income Accrual.

We are required to recognize certain items of income for U.S.

federal income tax purposes no later than we would report such items on our financial statements.

As discussed in Item 1a-Risk factors-"To qualify as a REIT, we may be forced to borrow funds, sell assets or take other actions during unfavorable market conditions", earlier recognition of income for U.S.

federal income tax purposes could impact our ability to satisfy the REIT distribution requirements.

However, recently released proposed Treasury Regulations generally would exclude, among other items, original issue discount (whether or not de minimis) and market discount from the applicability of this rule.

Although the proposed Treasury Regulations generally will not be effective until taxable years beginning after the date on which they are issued in final form, we generally are permitted to elect to rely on the proposed Treasury Regulations currently.

Stockholders are urged to consult with their tax advisors regarding any legislative, regulatory or administrative developments on an investment in the Company's common stock.