Government Master Lease ("GML")


A Government Master Lease (“GML”) is a structure that facilitates the purchase of an income-producing property that has good occupancy and cash flow but has been foreclosed on due to the previous owner not being able to refinance.  Commercial real estate deflation began in late 2007 and lenders have reduced or eliminated their lending.  Commercial real estate nationwide has devalued 42.9% and is expected to reach 55%.  Many owners of commercial real estate owe more than the current value which prevents them from obtaining a refinance when their loans come due.  The purchase price of this type of foreclosed property is steeply discounted, allowing Teutonic LLC to purchase it and be able to pay a City or County government a substantial GML tax. 

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

Maximum GML: 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 GML structure: 

  1. A City or County Government (“Government”) enters into a 25 year Master Lease of the to-be purchased property wherein the Government guarantees Teutonic LLC a certain percentage of occupancy that is at or below current occupancy of the subject property.       
  1. After acquisition, Teutonic LLC pays the Government a monthly GML Tax, a special tax assessment, in an amount to be determined based on a percentage of the property’s income.  In addition, Teutonic LLC pays standard real estate taxes.     
  1. Teutonic LLC donates the property to the Government no later than the end of the 25 year Master Lease.  Teutonic LLC has the option to donate earlier and typically targets the 9th to 11th year as the year to donate (due to tax issues).      
  1. Teutonic LLC guarantees that minimum occupancies are maintained.  If to-be-determined occupancies are not maintained, Teutonic LLC will immediately donate the property to the Government.   In this event, the Government would assume the remaining 25 year fixed rate financing and engage a competent professional leasing and management firm to carry on the affairs of the property on behalf of the Government.     
  1. To help mitigate the risks that the Government would be required to come out of pocket to meet the GML payments or the assumed loan payments, a Rent Reserve for 6-12 months is established at closing.       


Advantages to Government    

  1. Government receives GML Tax      
  1. Government receives 100% ownership of the property at the end of the 25 year Master Lease or earlier if Teutonic LLC donates before the expiration of the 25 year Master Lease or Teutonic LLC defaults on minimum occupancy levels.  Once the Government owns 100% of the project, the Government will enjoy significant net cash flow if actual project occupancy exceeds minimum required levels.  Also, once the project is owned by the Government, the Government’s real estate tax is paid to itself which creates a cushion in the event of lower occupancies in the future.     
  1. If the Government receives the property ownership before the expiration of the Master Lease (by reason of Teutonic LLC minimum occupancy default or early donation), the Government may be able to sell the project for a substantial profit.       
  1. At the end of the 25 year Master Lease, the property is free and clear of debt and the Government will receive a substantial windfall upon sale of the property or enjoy significant net income from the property.     
  1. Typically, for a GML structure, the Government is not required to obtain voter approval through a referendum.      
  1. The proposed GML 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 GML structure may be viewed more positively by analysts than a general obligation bond as the GML tax revenues and the residual value (through the Donation) should be treated as additional Government assets.