Lease Financing

What you need to know

  • The Finance Authority must retain the title for a minimum of five years. The agency would set up a 20-year term and allow for a pre-payment with appropriate indemnifications
  • The client can own the land and enter into a ground lease with the Finance Authority
  • The Finance Authority can own the land and hold fee simple title to the land

Details of the deal

The Finance Authority would save the client a significant amount on the cost of construction materials for the project. Below is a step-by-step breakdown of the financing structure for this deal:

  • The Finance Authority issues taxable bonds to finance the project
  • The Finance Authority holds the title to the building and enters into a long-term lease with the client (typically five years)
  • The bonds may be purchased by:
    • The client’s bank
    • A related entity of the client itself
    • The Finance Authority could place the bonds in the capital markets
  • If the bonds were purchased by the client’s bank, the bank would negotiate the terms of the lease (interest rate, term, guarantees, etc.)
  • At the end of the lease term, the building’s title would be transferred to the client for a nominal amount
  • The client would be viewed as the building’s owner for federal tax purposes and therefore would be able to take depreciation on the building