Wednesday, September 30, 2009
Need Cash? Sell the Capitol Building!
The New Trend of Government Sale-Leasebacks.
As reported by Globe St.’s Brian K. Miller, Arizona has approved plans to auction its “State Capitol Executive Tower” in a 20 year sale-leaseback. The tower houses the offices of the secretary of state, state treasurer and Governor and has an estimated value of $40 million. Arizona was forced into this predicament because of its current budget shortfall, which currently stands at around $3.2 billion.
However unlikely, this is just one example of a growing trend of government sale-leasebacks. California plans to sell $2 billion (or 62% of Arizona’s budget deficit) worth of government real estate, including the Attorney Generals Office, in a similar sale-leaseback. The City of Alexandria, VA, is considering the same thing with a host of its properties and Chicago has already performed sale-leasebacks with the “Skyway toll road, downtown parking garages and downtown parking meter system” for $3 billion. Sale-leasebacks make sense for governments because they allow them to get cash now to pay off their debts while retaining the option to buy back the property in 20 years or so.
Investors have shown a great deal of interest in these properties because their tenants (the government and in-effect, taxpayers) have strong credit ratings and in some cases will return twice what the investor pays. Not surprisingly, interest goes beyond political boundaries, as it is reported that international investors are heavily intrigued by these sale-leasebacks. This creates a bit of an irony, because in theory, you could have a U.S. State Capitol building owned by China.
Sale-leasebacks are generally structured as net leases, giving strength to a segment, which as Michelle Napoli pointed out, is already one of the most active in this current market.