MONEY for MUNICIPALITIES
THE STATE OF OUR STATES AND MUNICIPALITIES
“Nearly 100% of municipalities with 50,000 people or more are now operating with a deficit…” -
Municipalities or “Munis” are sputtering. Bars, restaurants, hotels, and theaters have closed; tens of thousands of people have already lost their jobs and there have been countless fatalities.. Munis have become the epicenter of the novel coronavirus. COVID-19 is bludgeoning the city’s coffers. And it is expected to get worse before it gets better…
Unlike previous recessions that have only affected certain sectors of the market such as banking a real estate, this next pending recession is expected to go much deeper. Everything from small restaurants and retailers to large shopping malls, travel, leisure, and hotels have been affected. Munis expect to lose billions in tax revenue from shuttered businesses, decreases in tax revenues, reductions in property values while simultaneously “paying out” huge unexpected expenses from unemployment benefits to health care and other social services.
Versions of this story are playing out across the country (and around the world). Munis are looking for ways to cut their budgets as tax revenue and economic activity decline and medical costs soar. The $3.8 trillion municipal-bond market—loans used for things like building schools, hospitals, and golf courses—has essentially frozen. Typically, municipal bonds are considered pretty safe, however, the situation had become such that “finding buyers for municipal bonds would require cutting prices in ways that appear unprecedented…”
MONEY for MUNICIPALITIES
Need Money?
Many cities and municipalities are going through challenging financial times with unprecedented and higher unemployment expenses, lower sales tax income, and losses from a volatile stock market. WE CAN HELP.
After many years of success in the single tenant net lease space LemRx has teamed up with several public pension funds and municipal real estate lenders. We can invest in real estate via sale/leaseback, structured financing, and are open to more creative ways to raise much needed money for your municipality. This allows you to raise money quickly while maintaining control of the real estate.
LemRx Realty Advisors and our partners work with both commingled funds and separate accounts on behalf of institutional and high net worth investors, including public and corporate pension funds, insurance companies, family offices and trusts. We/our partners are currently working with 2 state pension funds and have successfully deployed over $2 billion in pension funds.
Dissatisfied with your pension fund returns? WE CAN HELP! With the mantra “the perfect combination of low risk and high yield” we have been able to find investment grade opportunities that have been yielding: significant cash flow + “peace of mind”…
For more information please email munis@lemrx.com
Dan Lem: 415.385.7381
Haley Nekota: 707.674.1711
John Mugnani: 415.710.4534
A Woman & Minority Owned Business Enterprise
Specializing in Municipal Owned Real Estate
Get Cash And Still Control Your Municipal Real Estate Using Sale/Leasebacks:
Sale/Leasebacks are situations in which a municipality (“Muni”) or other government entity transfers a property it owns through a sale for cash and simultaneously executes a lease on the same property. Sale/Leasebacks are both a financial and real estate transaction that allow a community, county, or state government to capitalize on its creditworthiness.
Why Communities Use Them:
Sale/Leasebacks allow a Muni to productively use the capital that would otherwise remain locked up in its real estate assets. If a Muni believes it could better use the capital tied up in a city hall building, court house, university, police and fire states, etc. for operating expenses, balances the budget, or for improvements to the community or for other financial obligations, Sale/ Leasebacks could be the perfect solution.
Often communities are surprised to discover that the value of their real estate equity and cash from Sale/ Leasebacks can be used to finance and pay for unexpected unemployment or health care expenses, police, fire, and other social services, or make improvements to existing buildings or community infrastructure.
Sale/Leasebacks have also proven effective in bridging budget gaps and increasing bond ratings and capacity. Notably, the capital from Sale/Leasebacks can be used in any way the Munis wishes. In today’s economy, this flexibility can be critical.
How Sale/Leasebacks Work:
By way of example, let’s say a Muni requires funding to pay for unexpected unemployment benefits and other social services. A Sale/Leaseback transaction to obtain funds needed for the municipal improvements includes the following steps:
The Muni would sell the property to a LemRx or one of its partners for fair market value based on:
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A 15 -20 year lease or more with modest annual rent increases and a starting fair market value rent.
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The entire process would be concluded within 60 – 120 days at minimal cost and risk.
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The Buyer would collect the rent specified in the agreement while the Muni would gain budgetary stability with established rent costs for the term of the lease
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The Muni could then use the proceeds from the sale to pay for unemployment or health care expenses, police, fire, and other social services, or make improvements to existing buildings or community infrastructure.
Sale/Leasebacks vs. Bond Financing:
Traditionally, Munis have raised funds by issuing bonds. Sale/Leasebacks are not intended as a replacement for issuing bonds but as an alternative to be used when and where appropriate. As is the case with bond financing where the community must pay off the bond, however, given reduced credit rating for many Munis, bond repayment insurance could be cost prohibitive.
In a sale/leaseback, the Muni must make lease payments, however, the Muni would also have a huge “lump sum” amount of cash to work with immediately upon the sale/leaseback of a Muni owned property. The Muni could also invest a portion of the money it received from the sale of the property to pay for much needed expenses and to balance their budgets.
Sale/Leasebacks also have other advantages over bond financing because Sale/Leasebacks:
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Eliminate the cost of an election and advertising.
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Avoid the risk of voter disapproval of the referendum.
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Replace the repayment of bonds and fluctuating interest rates with predictable monthly payments.
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Sidestep the slow bond issuance process with its various overhead and hidden costs.
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Circumvent complex trustee, compliance and insurance fees.
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Provide uninterrupted possession of a property with a leasehold interest.
Unlocking Municipal Assets:
For decades, Fortune 500 corporations have used Sale/Leasebacks as a financing vehicle for a variety of reasons. Corporate executives have long viewed the sale and subsequent leaseback of their facilities as a means of accomplishing specific financial objectives while maintaining control and use of the real estate.
This process allows the corporation to sell brick, mortar, and dirt for a price in excess of their unleased value. If a company wishes to show increased productivity, Sale/ Leasebacks could be very helpful. Many corporations measure their productivity by calculating a return on assets. Sale/Leasebacks also potentially allow the corporation (or Muni) to reduce the assets shown on their balance sheet. Consequently, the corporation’s rate of return (earnings divided by assets) increases if there are less assets on the balance sheet.
The objective for Sale/Leasebacks could simply to show increased earnings, which is accomplished by converting equity in the form of buildings with little or no debt into CASH that may be needed for business expansion or other purposes. Sale/Leasebacks provide an opportunity to raise cash while maintaining operating control of the property as if the property were still owned by the corporation.
Conclusion:
Sale/Leasebacks are a viable way of raising money quickly while maintaining control of your assets. To determine if Sale/Leasebacks are a feasible or optimal option, it is essential to engage the assistance of experienced real estate negotiators with no conflict of interest to work with your real estate, legal, and financial departments or consultants. Please call or email us anytime for a quick no obligation discussion about your Muni’s particular situation.
For more information please email munis@lemrx.com
Dan Lem: 415.385.7381
Haley Nekota: 707.674.1711
John Mugnani: 415.710.4534
A Woman & Minority Owned Business Enterprise
Specializing in Municipal Owned Real Estate
WHAT IS A MUNICIPAL REAL ESTATE LOAN?
A municipal real estate loan is a loan made to a municipality that is generally secured by a piece of real estate. This real estate can be a city hall building, court house, university, parking lot or essentially “any” property owned by a credit worthy municipality. These can be “owner user” loans where the loan is backed by the Muni with interest that can be fixed or variable and generally due in 5, 7 or 10 years with amortizations of typically 20 – 30 years. However, if Muni also chooses to sign a “long term lease” on the property in addition to signing as the borrower, the Muni may get better loan rates and terms including fully “self amortizing debt” that essentially can be paid off in its entirety over the term of the lease.
WHY GET A REAL ESTATE LOAN INSTEAD OF ISSUING BONDS?:
Obtaining a real estate loan has other advantages over bond financing because they:
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Eliminate the cost of an election and advertising.
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Avoid the risk of voter disapproval of the referendum.
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Replace the repayment of bonds and fluctuating interest rates with predictable monthly payments.
-
Sidestep the slow bond issuance process with its various overhead and hidden costs.
-
Circumvent complex trustee, compliance and insurance fees.
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Provide uninterrupted possession of a property with a leasehold interest.
LET US HELP YOU GET A MUNCIPAL REAL ESTATE LOAN (Better than Issuing Bonds)…:
Our lenders put themselves in a political frame of mind, understanding the political workings of the Muni and recognizing that access is the key to success. Knowing the right people and who really has the decision-making authority will make the lender-municipality relationship a reality.
Among all the yardsticks that [government] has for measuring power, access is primary. That is the law of organizational politics everywhere...Access counts at all levels, in all power pyramids and networks...There is always another circle of power to penetrate; access is the open door, the answered phone call, a couple of minutes with a key player in a corridor or committee room.”
With our personal connections with municipal lending experts and state pension funds we are the bridge that connects your municipality with lenders who understand the unique political workings of your municipality.
Various types of loans are made directly or indirectly to municipalities. These loans are repaid through general cash flows or through specific revenue streams, such as water and sewer fees or stadium and parking fees.
Our lenders provide a wide range of financing for state and local governments, municipal agencies, school districts, nonprofit hospitals, and more. We can also offer Lines of Credit, providing the ability to draw funds as needed, resulting in interest savings over the course of the project. In business, timing is everything. Unexpected expenses? You have to react fast. An opportunity arises? You need to move quickly. With a line of credit, you can have the money you need at a moment's notice.
Conclusion:
Commercial real estate loans with preferred lower interest rates are a viable way of raising money quickly while maintaining control of your assets. To determine if a commercial real estate loan is a feasible or optimal option, it is essential to engage the assistance of experienced real estate negotiators with no conflict of interest to work with your real estate, legal, and financial departments or consultants. Please call or email us anytime for a quick no obligation discussion about your Muni’s particular situation.
For more information please email munis@lemrx.com
Dan Lem: 415.385.7381
Haley Nekota: 707.674.1711
John Mugnani: 415.710.4534
A Woman & Minority Owned Business Enterprise
Specializing in Municipal Owned Real Estate