Government Lease Guarantee ("GLG")

For Single Occupant Employer Buildings   

A Government Lease Guarantee (“GLG”) is a structure that facilitates the purchase or the completion of a to-be-built single occupant employer building.  Commercial real estate deflation began in late 2007 and lenders have reduced or eliminated their lending, especially to a below investment grade single occupant employer (“Employer”), which finds it difficult to re-locate to its targeted City or County due to the lack of financing.  Therefore, the targeted City and County governments cannot enjoy the increased revenues from new real estate taxes on the Employer’s property along with additional real estate and sales taxes derived from the Employer and its employees. 

Minimum GLG: $1.5 million (prefer $3 mil. or more) 

Maximum GLG: No maximum 

Minimum Government Rating: “BBB+” 

Minimum Government Population: 20,000 for City and 50,000 for County (less population may be considered if Government has low current debt)  

The following is a summary of the GLG structure: 

  1. A City or County Government (“Government”) guarantees a 25 year lease of the to-be built project or to-be-purchased building wherein the Government guarantees First Funding LLC that the Employer will pay the required rent.      
  1. After completion or acquisition/renovation, Teutonic LLC pays the Government a monthly GLG Tax, a special tax assessment, in an amount to be determined.  In addition, Teutonic LLC pays real estate taxes.    
  1. Teutonic LLC donates the property to the Government no later than the end of the 25 year lease.  Teutonic LLC has the option to donate earlier and typically targets the 14th to 15th year as the year to donate (due to tax issues).  If the property is donated earlier than the end of the 25 year lease, the Government assumes Teutonic LLC’s financing which has lower payments than the rent the Government was paying Teutonic LLC.  Teutonic LLC’s financing is fully amortized over 25 years with a fixed rate.     
  1. The Employer provides the Government and Teutonic LLC with employer financial statements on a quarterly basis. To help mitigate the risks to the Employer not being able to make the lease payments to Teutonic LLC, a Rent Reserve is established at closing in an amount to be determined.  In the event the Employer is unable to make its rent payments to Teutonic LLC and the Rent Reserve is used up, Teutonic LLC will immediately donate the property to the Government.   In this event, the Government would assume the remaining financing and engage a competent professional leasing firm to re-lease the building on behalf of the Government.      

 Advantages to Government    

  1. Government receives new Real Estate Tax revenues from the subject property.     
  1. Government receives new Sales Taxes as a result of the Employer and its employees.    
  1. Government receives new Real Estate Tax revenues from homes built or purchased by Employer’s employees.     
  1. Government receives GLG tax    
  1. Government receives 100% ownership of the property at the end of the 25 year GLG or earlier if Teutonic LLC donates to the Government before the expiration of the 25 year GLG or if Employer defaults on payment of its lease obligation.  Once the property is owned by the Government, the Government can sell it or continue leasing it.     
  1. If Teutonic LLC holds the property for the full 25 years and donates at the end of the 25 years, the property is free and clear of debt and the Government will receive a substantial windfall upon sale of the property…or substantial net income from the leasing of the property.    
  1. Typically, for a GLG structure, the Government is not required to obtain voter approval through a referendum.     
  1. The proposed GLG structure is a contingent liability and will likely be treated as a Capital Lease and considered debt on the Government’s Balance Sheet.  However, the GLG structure may be viewed more positively by analysts than a general obligation bond as the GLG tax revenues and the residual value (through the Donation) should be treated as additional Government assets.