1. Using Sale-Leasebacks to Finance Public Projects
Mike Gabrail and Geoff Wehling
November 2017

2. A transaction in which the owner of a property sells an asset, typically real estate, and then leases it back from the buyer. In this way, the transaction functions as a loan, with payments taking the form of rent.
Sale-Leaseback

3. Why is this a good option?
Ohio State University sells the Horseshoe to University of Michigan
University of Michigan leases it back to Ohio State University

4. Sale-leaseback authorizations for local governments
ORC 9.483
Passed as part of State Budget Bill
Sale-leaseback authorizations for local governments

5. Structuring a Sale -Leaseback

6. 2 Types of Sale-leasebacks (but really?)
True Sale-leaseback
Previous example: OSU & Michigan
Sale-leaseback to Finance Improvements
City of McKinley needs $1MM in renovations for their courthouse
2 Types of Sale-leasebacks (but really?)

7. Types of Sale-leaseback
Traditional
City sells Building A to LLC, LLC leases back to City
City
LLC
Building A

8. Type of Sale-leaseback
Nontraditional
Anything not involving a simple up-front payment to a city in exchange for a building with extended time for lease
City sells land for Building A to LLC, LLC finances Building A construction, City enters into long-term lease for Building A
Same as above, but City contributes land to LLC and takes financial stake in LLC
Type of Sale-leaseback

9. You don’t want to touch or affect your bond capacity
Sale-leaseback will be the result of two factors working at the same time.
You need money
You don’t want to touch or affect your bond capacity

10. Economic Development
Sale-leasebacks and beyond

11. Ideal Structure of Economic Development Financing
City of Cleveland wants Pittsburgh Steelers to move to Cleveland
Steelers will only do it if Cleveland improves stadium with $200 MM in renovations (also, will enter into 15-year lease as a result)
Cleveland does not have the money to complete renovations, but can afford to guarantee the 15-year lease
Kosar Company is willing to own the stadium and front the money for the renovations, but must have Cleveland guarantee the 15-year lease
Everyone is happy 
Ideal Structure of Economic Development Financing

12. Prevailing Wage Requirements
Apply to these unique financing projects
NOT a way to get around prevailing wage

13. Chapter 133 of the Ohio Revised Code: Uniform Public Securities Law
PROS
Engaging Private Entity vs. Municipal Bonds for Paying for Projects
Interest rate risk mitigation (fixed rate vs floating for bonds)
Does not count towards debt service limit
Turns a capital cost into an operating cost
Chapter 133 of the Ohio Revised Code: Uniform Public Securities Law

14. CONS Engaging Private Entity vs
CONS Engaging Private Entity vs. Municipal Bonds for Paying for Projects
Higher “interest rate” on projects due to using private capital rather than tax-advantaged public debt
Political questions surrounding the “sale” of a public asset (Arizona?)

15. Q & A

16. Can private financing arrangements be considered debt for bonding-limit purposes?

17. How to Account for Sale-Leaseback Transactions in Public Sector Financial Statements
Operating vs. Capital Leases 1
GASB 87 2