Wednesday, September 16, 2009

Arizona has Chutzpah

The Daily Show last night featured the sale-leaseback deal that Arizona is trying to get for its capitol. Sales price of $735 million, lease payments of $60 million for 20 years, property reverts to state at end of the 20 years.

The IRR for the investor: 5.2 percent. Hmmm.

15 comments:

  1. Uncle Billy, Mental Widget1:03 AM

    What happens if they default???

    ReplyDelete
  2. Anonymous9:49 AM

    It starts out okay, but after a decade or so inflation will make the interest a really bad deal. Plus investors have to take the risk that they won't pay, since they don't really own the building. Try kicking out the legislature to move paying renters in.

    ReplyDelete
  3. This is impressive. Sounds good, only if there are no hidden clauses.
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    ReplyDelete
  4. Since the state also gets property taxes on the now privately owned land, the IRR is slightly higher.

    I know Arizona and its municipalities mainly survive off sales taxes, but it is a slight difference.

    Otherwise its a straight inflation bet, and it looks like yet another sector of the government is betting it goes goes up.

    ReplyDelete
  5. Are you sure there isn't a tax angle? I realize that the American Jobs Creation Act of 2004banned most SILO transactions with government entities, but the law is complicated, and Arizona might have found a way around it to give depreciation to investors.

    Most of the capital would be 39 year property, but a cost segregation study might find a lot of shorter life 150% DB property. There is no capital gains tax at the end, since the property reverts back to the state. This could boost the IRR by a lot.

    ReplyDelete
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