Archive for May 31, 2011

Study: Downtown Salt Lake City theater would attract 123K new visitors to Utah

Broadway Theater Rendering in Salt Lake

A cutaway view, looking north, of a plan for a Broadway-style theater along Main Street in downtown Salt Lake City.

By Jared Page, Deseret News

SALT LAKE CITY — A theater capable of hosting first-run touring Broadway shows would attract more than 123,000 new visitors to Salt Lake City each year and serve as an economic catalyst on Main Street, according to a study released Tuesday.

The yearlong study commissioned by the Redevelopment Agency of Salt Lake City identifies a bevy of cultural and economic benefits the proposed Utah Performing Arts Center would bring to the capital city.

The study was conducted by Garfield Traub Swisher, the Utah-based company selected by the RDA in October 2009 to develop the theater.

The developers say the Utah Performing Arts Center would meet the pent-up demand for first-run touring Broadway productions in Utah. Currently, space and scheduling limitations prevent Salt Lake City from attracting such shows until their seventh, eighth or ninth runs.

“The Lion King,” for example, came to Utah 13 years after it opened on Broadway, according to the study. The show was a huge hit, running for seven weeks and grossing $8 million in sales. It also generated more than $500,000 in sales-tax revenue, $500,000 in stagehand job wages, $200,000 in local musician job wages and another $500,000 in facility rental income.

Garfield Traub Swisher estimates a $200 million to $500 million one-time economic boost during construction of the 148,000-square foot performing arts center. The developers also estimate $9.4 million a year in ongoing economic output from the theater.

In October 2008, Salt Lake City Mayor Ralph Becker announced plans to build the Utah Performing Arts Center at approximately 135 S. Main. The project, which will feature a 2,500-seat theater, is estimated to cost between $88 million and $98 million.

The complete report can be downloaded at www.slcrda.com.

Public Private Partnerships (P3s) Solving Government Budget Deficits

Public Private Partnerships (P3)As Government budget deficits continue to climb for state, local and federal Governments, you will hear much more about the utilization of Public Private Partnerships, also known as, “P3s” or “PPP” to solve this problem. P3 projects are quickly rising in popularity due to the success of obtaining funds to renew Government infrastructure, improve transportation, and construct new projects that they could not afford before.

Public Private Partnership (P3) projects involve a contract between a public sector authority and a private party, in which the private party provides a public service or project and assumes substantial financial, technical and operational risk in the project. In some types of PPP projects, the cost of using the provided services is given exclusively by the users of the service and not by the more traditional method of using the taxpayer.

But why would a private company assume such a huge risk?

Like any investment with large risk, there is a great opportunity for an invested private business to make a lot of money. With Public Private Partnerships (P3s), revenues can be in the form of either a fee for service, paid by government, or fees collected from users, as in the case of highway tolls, automatically ticketed red lights, or hotels attached to convention centers.

One example of a development company successfully using Public Private Partnerships structured to benefit various parties, is Garfield Traub Development. Garfield Traub Development has developed over 40 hotels using primarily P3 funding. One example specifically is the Overton Hotel and Convention Center located in Lubbock, TX. This 303-room hotel with a 47,000 gross square-foot conference center is located across the street from Texas Tech University and Jones AT&T Stadium in Overton Park, the largest private redevelopment project in U.S. history, to date.

The hotel was financed with private debt and equity. The conference center was financed with City bonds to be repaid by site-specific occupancy taxes and property taxes. The capital plan also included naming rights, room licenses and nonprofit foundation grants.

The City now leases the conference center on a long-term basis to the hotel owner who operates the entire property. In addition, the hotel also partnered with Texas Tech University’s Restaurant, Hotel, and Institutional Management (RHIM) program to provide hands-on laboratory experiences in a variety of areas that will truly benefit the RHIM students, giving them the opportunity to become successful professionals in the hospitality industry.

With P3s solving Government budget deficits and successfully creating development projects like these, it is no wonder that they are on the rise. It really is a win-win situation for everyone involved and creates a solution to a big problem.

If you want more information on how Public Private Partnerships (P3s) might help you, visit http://www.garfieldtraub.com or e-mail Garfield Traub.

Use Public/Tax-exempt Structure or Public/Private Structure?

Should you use Public/Tax-exempt Structure or Public/Private Structure when developing a big convention center hotel? Catherine Holmes, Partner at Jeffer, Mangels, Butler & Mitchell LLP, highlighted in a previous discussion of ours on our LinkedIn group, “Public Private Developments,” about how great the City of Dallas did in getting the Omni Dallas Hotel approved and financed. We would like to branch off her discussion as a Dallasite, and thank Catherine Holmes and everyone involved in getting the Omni Hotel under construction.

Without a headquarters hotel, Dallas had lost its ability to compete for conventions. Booking activity at the convention center since the hotel groundbreaking has been at recent historic highs. But Dallas’ structure was a Public finance structure (not Public/Private) using tax-exempt bonds and Build America Bonds (no longer available) with city guarantees. Indeed, it is our opinion that to finance a 1,000 room hotel development today, it must be a publicly owned and sponsored hotel.

One notable exception is the Omni Hotel getting ready to break ground in Nashville. Why? Omni brought a “deep pocket” and a “Brand, Owner-Operator” very aggressive approach in order to capture that assignment, an assignment previously awarded to another development/design/flag team that could not get the facility financed. Omni’s approach was more aggressive than 99% of the competition has been willing to do in the past for this type of development. Even with the larger equity and debt guarantee commitments, we have it on good authority that the City of Nashville contributed to Omni the land and infrastructure approximating $25 million in value, plus a 20 year tax abatement for 2/3′s of hotels taxes, itself valued at $100 million. That’s a heck of a subsidy for municipality to provide to a private developer. One has to ask the question of whether the City would have been financially better off in the long run to “own” the hotel like Dallas, Houston, Denver, Baltimore, Sacramento, Omaha, Overland Park and the dozen or so other cities who have made that public vs. public/private comparison and chose the former.

The traditional Public/Private financing structure used for hotels that support convention centers, conference centers, university or hospital campuses or airports, brings private equity and conventional debt and combines it with a public bond to complete the capital stack. Since banks were out of the lending business for new full service hotels until just recently, lately we’ve seen bank underwriting criteria showing a Loan to Cost constraint at 50% limited by big Debt Service Coverage ratios of 1.7X to 1.8X, yielding a true loan to cost of 35% to 40% or even less!

Additionally, the amount banks will loan on any one new hotel development is still volume constrained so that getting a bank syndicate together to bring much more that $50 to 60 million in a first mortgage is problematic. Trying to raise $150 million in bank debt for a 1,000 room hotel development is, at the moment, highly unlikely. If anyone knows differently, please comment. So I think that the “sweet-spot” for Public/Private hotel developments today is for smaller communities seeking 250 to 500 keys, while the larger hotels need to trend to the Public structure.

We were also asked by another fellow member, “Do you see municipalities moving in the select service direction–targeting multiple locations using municipal properties–to reduce cost while simultaneously adding to room count?”

Municipalities considering Select Service Hotels as a magnet for more tourism and the economic development it brings, are usually smaller communities where the cost of a Full Service Hotel is prohibitive. There are some excellent examples of Marriott Courtyards, Hilton Garden Inns and Hyatt Places which are connected to conference centers in the suburbs of major municipalities. Around Dallas, Garland, Allen and Lewisville have such properties which serve a vital community purpose.

But for those major communities that require a Full Service, First Class Hotel to support their convention center, they must first insure that an adaquate number of Full Service rooms exist in order to be able to optimally recruit conventions and compete with those cities that have everything Group Planners demand. Case in point is Pittsburgh where new Select Service hotels have opened near the David L. Lawrence Convention Center but haven’t increased booking to a measurable degree. The city has, for a decade, hoped to attract a developer to finance and build a Full Service headquarters hotel, to no avail. They need to learn from your own hometown of Baltimore, just how to support that sort of development. We hope you’ll agree that the Hilton Headquarters hotel has been a major draw for the improved success at the Baltimore Convention Center. 

We agree it makes sense to develop Select Service products in the shadow of a successful convention center or other event centers. Indeed, no less than 5 Select Service hotels began development once we broke ground on our Overland Park Sheraton and Convention Center outside of Kansas City, and today they provide a competitive lower price point for convention attendees. But it’s the City’s Sheraton that “seals the deal” to bring the conventions.

Our member was also correct in stating that construction lenders today are much more receptive to the Select Service model than a Full Service hotel. They’re simply more affordable and therefore less risky. But a danger point is the very fact that they are easier to finance and therefore that product can become overbuilt in an area, creating too much competition, lower rates and lower occupancy!

To see full discussion or more discussion like this one you can visit our LinkedIn group call Public Private Developments.

New Broadway-Style Theater to be in Downtown Salt Lake City

It wasn’t a standing ovation or a glowing review in The New Yorker, but the reaction of the Salt Lake City Council to a proposed $100 million Broadway-style theater was the next best thing: None of the purse-string-clutching members objected.

And for an encore Tuesday, Salt Lake County Mayor Peter Corroon and his deputy said they would be receptive to managing the proposed playhouse.

“It’s what we do best is managing arts and cultural facilities downtown,” Deputy County Mayor Nichole Dunn said. “It would be a natural fit.”

A newly released city-commissioned report by Garfield Traub Swisher (GTS) strongly endorses a new theater at 135 S. Main St. The consultants also urge that the county manage it, saying that such expertise could result in an annual profit of $2.4 million after the first five years.

The City Council will be asked in June to pass a resolution formally endorsing the theater. Such a vote would also direct the Redevelopment Agency of Salt Lake City to pursue a funding strategy, which the GTS report envisions as a combination of sales-tax bonding, federal tax credits and cash from naming rights.

“As long as I’ve been on the council, this section of Main Street has always been a challenge,” said four-term Councilman Carlton Christensen. “I see this as a real changing element for downtown, and I’m pretty excited.”

If Broadway’s “Book of Mormon” ever tours, Councilman J.T. Martin quipped, “maybe we could get the first booking.”

Such a road show seems likely, given that the unexpected hit has been nominated for 14 Tony awards.

No council member voiced reservations about the theater’s price tag or whether the project could siphon dollars and devoted patrons from other arts venues.

For his part, Corroon said he has “some concerns” about how a Broadway-class theater might affect downtown’s Capitol Theatre. County estimates suggest the Capitol could lose as much as $600,000 a year if the new theater comes to town.

Is a new facility something that is nice to have? Yes,” Corroon said. “It would be great for Salt Lake to have a large, Broadway-style theater that allows shows to come here that otherwise wouldn’t come, or would wait for 10 years to come.

As for the county running the theater, Corroon said, “It makes absolute sense.”

The yearlong study, which cost $741,000, argues that Utah audiences only see the seventh to ninth run of touring Broadway shows because of the dearth of a first-rate facility. It notes a major playhouse was recommended by the Salt Lake Chamber as early as 1962 as part of the so-called Second Century Plan. And the report, which outlines the economic benefit theaters have brought similar-size markets, projects a Main Street theater would boost Salt Lake City’s coffers by $9.4 million a year.

What’s more, an adjacent 20- to 25-story office tower, proposed by Hamilton Partners’ Bruce Bingham, would increase the city’s annual take to $14.8 million, the report says.

But a question remains on whether the theater should be located midblock, at 135 S. Main St., or on the southeast corner of 100 South and Main Street. Bingham, city officials and the consultants would have to decide soon whether to design the project with the tower on the corner and the theater midblock or vice versa.

“The juxtaposition with City Creek [Center] is interesting,” Bingham told the council. “You want to be close, but not too close.”

Councilman Luke Garrott noted that a theater on the corner could maximize its exposure with multiple street fronts. Even so, the consultants stress that a midblock theater would also engage multiple sides, with a planned midblock walkway and an entrance fronting Regent Street immediately east of Main Street.

Helen Langan, senior adviser to Salt Lake City Mayor Ralph Becker, said either building arrangement could work, noting that the city will continue to work with the consultants and architects before making a decision.

“We want to create the most successful project for the city,” Langan said. “We’re going to do it right.”

Arts groups are mostly skeptical of — if not outright opposed to — the project. They argue Utah still gets most Broadway runs — if a little later — and insist a mega-playhouse would squeeze their audiences and bottom lines.

Others say the benefits, particularly as the city sees a downtown renaissance, far outweigh the risks.

“It is important that Salt Lake City remain the cultural core of the region. … No matter how or when the theater comes into existence,” said Salt Lake County Councilman Arlyn Bradshaw. “I am definitely a supporter of it.”

It it wins approval, the theater would take three years to design and build. The office tower, though it may not be built simultaneously, would also take three years.

Tribune reporter Jeremiah Stettler contributed to this story.

Sheraton at the Overland Park Convention Center – References

Sheraton at the Overland Park Convention Center

Sheraton at the Overland Park Convention Center, Overland Park, KS

City of Overland Park, Kansas Director of Public Works Robert D. Lowry

March 14, 2006

TO WHOM IT MAY CONCERN:

During the period June 1999 through December 2002 I had the distinct privilege of serving as the Owner’s Representative for the City of Overland Park, Kansas for the design and construction of a new Convention Center and adjacent headquarters hotel. This was a very unique and complex project because the City Council made a commitment to fund the hotel without expending any public funds.

To make this happen, a request for proposals (RFP) was issued by the City for a development team to design, construct, finance, operate and maintain the hotel. The team selected for this project was led by Garfield Traub Development LLC. To say that the performance of this team exceeded all expectations of City staff and the City Council would be a gross understatement.

Given a very tight hotel market and a major down turn in the economy, the odds were against this project happening. But because of the leadership and expertise that Ray Garfield, Tony Traub and their team provided, the hotel was completed well ahead of schedule, under budget and the City Council made good on its commitment that no public funds would be used for the project. The end product was adopted by the Sheraton Hotel chain as its new standard, and the project was nationally recognized as the Public Sector Project of the Year by the Design-Build Institute of America (DBIA).

I have been involved in construction and construction management for almost forty years and have never seen a project executed as flawlessly as the Overland Park Sheraton Hotel at The Convention Center. The Garfield Traub team never lost sight of the desired outcome, was totally focused on exceeding the expectations of their client, and was comprised of the most professionally competent group of design, construction and management professionals I have ever had the pleasure of working with. I would actively seek an opportunity to work with the Garfield Traub organization on any type of development project in the future. They truly “under promise and over deliver.”

Please feel free to contact me at any time if you have any questions about this world-class organization.

Sincerely,

Robert D. Lowry
Director of Public Works

City Manager of Overland Park, Kansas (retired) Mr. Donald E. Pipes

February 2003

To Whom It May Concern:

In November 2002, the City of Overland Park, Kansas opened its new Sheraton Hotel and adjacent Convention Center. The dual project was a challenging goal of the City for fifteen years. The financing and development of a project of this magnitude is the most daunting and crucial phase of a project such as ours. Financing of the hotel component was key to the ultimate success of the complex and necessary for the City to move forward with the financing and development of the convention center.

Serving as City Manager of Overland Park from 1977 – 2002, I was deeply involved with all aspects of this project. Most important of all was the financial impact of the undertaking. Overland Park is a city of approximately 165,000 residents and enjoys a AAA general obligation bond rating from Moody’s and Standard and Poor’s. It was imperative that the City hire a strong, knowledgeable group to work on the financing and construction of the hotel.

Development proposals were gathered and carefully analyzed. Garfield Traub was selected as the most qualified and able to successfully negotiate all project documents and to structure and place the financing for the hotel. During the negotiations and structuring of the financing, Garfield Traub also provided vital leadership over the design, value-engineering and pre-construction process. The group exhibited extremely competent leadership and creative financing skills allowing us to break ground on the convention center and hotel for a 2002 grand opening.

The group also provided oversight of construction and pre-opening activities for the hotel and the facility was completed ahead of schedule and approximately $1.5 million under budget. Garfield Traub is also the Asset Manager for the city’s Hotel Corporation.

I highly recommend Garfield Traub Development. Their expertise proved to be invaluable to the City of Overland Park. Anyone considering site visits during the selection process is urged to include Overland Park on your visitation agenda.

Sincerely,

Mr. Donald E. Pipes
City Manager (retired)

DoubleTree Hotel and Conference Center – References

Doubletree Hotel and Conference Center

Doubletree Hotel and Conference Center Bay City, MI

Gastonia City Manager James M. (Jim) Palenicki

May 3, 2011

TO WHOM IT MAY CONCERN:

It is my distinct pleasure to offer this letter of reference and recommendation on behalf of Garfield Traub Development, LLC, and in particular its two principals, Ray Garfield and Tony Traub.

Beginning in Summer, 1996, and extending through the Autumn of 2002, I served as City Manager for the City of Bay City, Michigan. It was impressed upon me early in that tenure that the principally-defined redevelopment goal of our community was to finance and construct a first-class, full-service, Downtown Hotel/Conference Center of true “destination” quality. In fact, for well over a decade previous to that time a series of roadblocks and outright failures had left the project as little more than an unfulfilled dream that many were dismissing as “impossible”. Then, however, I discovered Garfield Traub Development and its consummately-skilled leaders, Ray Garfield and Tony Traub.

With their combined expertise in complex, tax-exempt bond transactions and Hospitality-oriented real estate deals, we were ultimately able to make possible a financing and development package that truly would have remained impossible using any other developers or consultants, under any other scenarios.

Drawing upon the utmost in financial creativity and personal relationships within the national financial and hospitality communities, Ray and Tony allowed us to experience the on-tune, in-budget, ground­breaking on a $34 million, 150-room, Double Tree-branded hotel and conference center that, in many ways, serves as the national “model” for anchoring urban-core redevelopment and success in a small city.

The Garfield Traub Development team, along with their excellent supporting organization, not only made the difference in financing; they also assisted in the identification and selection of an operator and design team; acquired a top national franchise; assisted with the negotiation of all critical legal, operational, and financial documents; and, provided important management support for the public relations and communications efforts necessary to gain stakeholder support.

Even though I am now many years removed from my tenure in Bay City, I can state that I remain steadfast in my admiration for the ability and professionalism possessed by these two men and their supporting organization. I can state unequivocally, that in their collective absence, the City of Bay City would not have completed the successful, and otherwise-long-awaited fulfillment of its primary redevelopment objective.

If you should wish to speak to me further about my experiences with the Garfield Traub Development team, or about the financing and development of the Bay City Double Tree Hotel and Conference Center, please don’t hesitate to contact me at my home number (704) 854-4178; or e-mail palenicki@bellsouth.net at your convenience.

Sincerely,

James (Jim) M. Palenicki
Gastonia City Manager

 

Bay Area Convention and Visitors Bureau
Executive Director Shirley M. Roberts

July 12, 2004

Dear Ray:

There is an energy and excitement in Bay City today that didn’t exist a few years ago. People here are beginning to see the potential of this sleepy little town along the Saginaw River. They are finally beginning to believe we can make great things happen here. It’s really amazing how one new, significant development can change the course of an entire community.

The concept of building a hotel/conference center in Downtown Bay City had been on the drawing board for at least 15 years. One after another, local officials attempted to negotiate a deal with what seemed the “private developer du jour.” Several times, just when it seemed everything was coming together nicely, one or the other (local officials or private developer) backed out and our community’s dreams for a new landmark came to a screeching halt. Following this series of starts and stops, people here were largely skeptical a deal could ever materialize.

Garfield Traub Development entered the scene during a period when the community was soundly divided on the issue. Most who were knowledgeable about the many failed attempts to work with private developers on the project thought they had seen and heard it all. The non-profit model you suggested was an entirely new approach and seemed, at first glance, too good to be true. In fact, the model worked exceedingly well. Garfield Traub successfully leveraged approximately $12 million in grants, $3.4 million in loans, and a $4 million loan from the City’s economic development corporation to secure $15.4 million in tax-exempt hotel revenue bonds to finance the project.

Following more than a decade of debate, and after only 18 months of construction, Bay City celebrated the first guest at its new Doubletree hotel and conference center in early June 2004. The first-class, full-service facility offers magnificent views of the Saginaw River and the Wenonah Park amphitheater; 150 guest rooms including two suites; 15,000 square feet of meeting space and a 7,600 square foot ballroom.

The Doubletree has indeed become the new landmark we hoped it would be. Still in its infancy, the property has received rave reviews for its accoutrements, meeting facilities and service. These, too, can be attributed to Garfield Traub and the extensive network you brought to the table. From the layout of the meeting facilities to securing the Hilton Corporation Doubletree brand…from selecting the architects to choosing the right interior design firm…Garfield Traub’s influence permeates the facility and has made a permanent mark on Bay City’s downtown riverfront landscape.

I certainly enjoyed working with you on this project and thought you should know how much our new hotel and conference center has impacted our community. Please feel free to call on me if I can be of any help to you in the future.

Best personal regards,

Shirley M. Roberts
Executive Director

Los Angeles Unified School District – Reference

Carmen Lomas Garza Primary Center (Dena Primary Center)

Carmen Lomas Garza Primary Center (Dena Primary Center)

Deputy, Chief Facilities Executive Jim Cowell

September 5, 2007

To Whom It May Concern,

Garfield Traub recently acted as the developer of “8″ Primary Centers in South Central Los Angeles for LAUSD.

Garfield Traub did a superb job coordinating and managing the simultaneous development of these eight separate projects, interfacing with eight different LAUSD Representatives at eight different locations, coordinating delivery by the builder and its eight separate project staffs and more than 200 subcontractors in accordance with eight distinct sets of plans and specifications each prepared and administered by a different architect and engineer.

Garfield Traub’s role representing the best interests of LAUSD as a mediator, facilitator and negotiator with the builder allowed for issues to be resolved equitably, timely and efficiently. Garfield Traub acted as a buffer between the owner and builder, and was always candid in advising both parties of its recommendation for the resolution of issues. Garfield Traub finalized all issues and not one item was in dispute in the form of a claim.

Challenges inevitably arise on every construction project. The ultimate measure of performance is the timing and manner in which problems are identified and corrected. Demonstrating great professionalism and teamwork, the Garfield Traub team rose to the occasion and met this test.

Garfield Traub’s experience and expertise ensured ultimate success of this highly visible and important project in LAUSD’s building program.

Sincerely,

Jim Cowell
Deputy, Chief Facilities Executive

Durham Performing Arts Center – Reference

Durham Performing Arts Center

Durham Performing Arts Center, Durham, NC

Assistant City Manager of Economic and Workforce Development
Alan DeLisle

October 22, 2007

To Whom It May Concern:

I serve as Assistant City Manager for Economic and Workforce Development for the City of Durham, and in that capacity have been responsible for the planning of the City’s new 2,800-seat Durham Performing Arts Center. The theater will accommodate Broadway performances, music, family shows, and other events. The theater “tops out” on October 30th with a ceremony marking the midpoint of construction, which is proceeding within budget and schedule toward a November 2008 Grand Opening.

Garfield Traub, and particularly its principals Greg Garfield and Tony Traub, were instrumental in the planning for the project, including financial and ownership structuring, facility programming, design, value-engineering, pricing, scheduling, helping the City to select the theater operator and negotiate the terms of the operating agreement, and to negotiate various other agreements with City contractors.

The City of Durham has benefited greatly from Garfield Traub’s leadership and expertise in this process. I have no doubt that they will continue to provide this exceptional level of service throughout the completion of the theater and turnover thereof to the City and the operator.

I highly recommend Garfield Traub Development to you for the development of your essential facilities. Should you have any questions regarding the above, I would be pleased to discuss with you. I can be reached at 919-560-4965 or by email at Alan.DeLisle@durhamnc.gov.

Sincerely,

Alan DeLisle
Assistant City Manager
Economic and Workforce Development

Municipal Lease-Purchase Financing – Benefits

As municipalities and states face continuing budget deficits, reduced revenues, and cutbacks in capital budgets, they are by necessity seeking creative ways to finance the delivery of essential facilities. Municipal leases provide a creative, yet straightforward, financing alternative to traditional general obligation (G.O.) debt financing. Similar to general obligation debt, lease-purchase financing enjoys tax-exempt status. Cities, counties, and states, as well as school districts are now acquiring, constructing, or renovating facilities through the use of lease-purchase financing.

A lease-purchase financing, involving capital assets of a significant size, is often financed using Certificates of Participation (“COPs”). COPs are securities that look and “feel” similar to tax-exempt bonds in that they pay the holder principal and interest on the securities. The COPs represent fractionalized interests in the lease payments made by the municipality under the lease-purchase documents. Because the COPs simply represent an interest in the lease, in most jurisdictions they do not represent indebtedness of the municipality. The proceeds of the sale of the COPs are used to pay development costs in the same manner as bonds and notes are used to finance permanent improvement projects.

Lease-purchase financing typically provides for and allows the lease payments to be “subject to annual appropriation” by the municipality. The municipality thereby reserves the right to “walk away” from the transaction without penalty if it elects not to appropriate funds for the lease in subsequent years. The municipality receives a credit for each lease payment and at the end of the lease term, the municipality can acquire full ownership of the asset at no cost or for a nominal amount (e.g. $1.00).

Benefits of Lease-Purchase Financing and Certificates of Participation

• The primary advantages of lease-purchase COPs financing are flexibility and speed. COPs allow for the immediate availability of funds for needed capital projects, and in most jurisdictions, are not subject to a voter referendum. Construction inflation can lead to substantially higher costs for those facilities that are delayed due to budget cutbacks or adverse voter sentiment.

• Financing spreads the capital costs of projects over several years. Often the general fund can handle the cost of repaying the financing over time, but not the immediate cost of the outright purchase price or construction cost of an essential facility. In effect, COPs leverage the general fund revenues to acquire the resources that are needed today. This can also be seen as more equitably matching the public user benefits to the public user cost over time. Furthermore, lease terms are typically flexible, including lease payments that escalate over time, allowing for lower initial payments.

• At the end of the lease term (upon the full amortization of the COPs), ownership of the facility can revert to the municipality. All payments are credited towards the purchase and directly reflect the cost of amortization. There is no costly arbitrage “risk premium” paid to a private developer, as is typically the case when leasing space in privately owned, conventionally financed facilities.

• Federal tax law treats a municipal lease like a bond or note of the municipality, resulting in the availability of a tax-exempt interest rate for the lease transaction. Just like municipal bonds, the lease financing must be for a qualified governmental or non-profit purpose in order to be tax-exempt, and a private party cannot be the actual beneficiary of the tax-exempt financing.

• Another major benefit of a municipal lease is that it is subject to annual appropriation and, therefore, in most jurisdictions is not considered debt of the municipality. Under a municipal lease, the governing board of the municipality must appropriate, on an annual basis, each year’s lease payments in the year that they are due. This annual appropriation feature usually provides an exception from the municipality’s normal debt limitations.

• Although lease-purchase financing is subject to the annual appropriation of funds, the capital markets have priced this form of debt very efficiently. Lease-purchase financing, or COPs, has been in existence for over 30 years with a very low level of default. The capital markets know that although a jurisdiction is under no direct obligation to make the annual lease payments, in practice, jurisdictions make these payments a top priority. First, these facilities are typically essential to the functioning of the governmental entity or its agencies, and a failure to continue the payments would deny the entity from use of the facility. Second, a failure to continue to make payments may have a negative impact on the entity’s credit rating and future access to the capital markets.

• When combined with the use of a nonprofit corporation as the nominal owner and a “turnkey” delivery process, a lease-purchase structure can expedite and improve the efficiency of facility delivery in many jurisdictions. In other words, procurement procedures can be streamlined and sub-contractors can be chosen based on the lowest “qualified” bid instead of the more common “lowest bid” process.

Special Considerations of Lease-Purchase Financing
• As noted previously, the interest rate or cost of funds associated with lease-purchase financing is slightly higher than that of general obligation debt, as may be issuance costs.

• The capital markets may also require debt service reserves, typically comprising one year’s interest and principal payments, to be raised as part of the original offering. However, reserves raised as part of the offering are an asset of the leasing municipality, and earn interest that reduces the annual net debt service. Typically, in the final year of the lease, the entire reserve is applied to reduce or eliminate the final year’s lease payment from the municipality. In certain cases, a lower-cost solution of a debt service surety reserve may be acceptable in lieu of a full debt service reserve.

However, these costs must be weighed against the savings that can accrue to a municipality by using lease-purchase financing. Essential facilities can be delivered for substantially less money and years ahead of schedule when the municipality is facing cutbacks in capital budgets, reduced revenue, and the time, expense and uncertain outcome of voter referendums. The immediate delivery of a facility can also insulate the municipality from the substantial cost of construction inflation and the uncertainty of future interest rates.

Garfield Traub Development’s Experience with Municipal Lease-Purchase Financing
Garfield Traub Development, in its role as a “turnkey” developer, has structured lease-purchase COPs financing for the following clients and essential facilities, among others:

• New York State Department of Transportation Region 1 Headquarters – The delivery of this facility involved an advantageous tax-exempt financing and lease-purchase arrangement, the first of its kind in the State of New York. The State’s general credit and taxing authority were not required. The State will make annually appropriated lease payments and will own the facility debt-free when the financing has been fully amortized at the end of the lease term. Garfield Traub’s innovative financing solution allowed the project to be delivered in record time while still taking advantage of the low-cost tax-exempt financing that resulted in the lowest cost of occupancy to the State.

• Washoe County Public Safety Training Complex – Under a creative installment sale delivery, the first of its kind in the State of Nevada, development funds were raised through the placement of AAA-insured tax-exempt certificates of participation. The certificates are secured by annually appropriated lease payments from the County, which will be offset indirectly by revenues from a sales tax bond issue. Payments will be further offset to the extent that space is leased to other tenants, and the County will own the facility debt-free when the financing has been fully amortized at the end of the lease term.

• City Court of Atlanta – Under a creative lease-purchase delivery, financing for this $62 million facility was raised through the placement of AAA-insured tax-exempt certificates of participation. The certificates are secured by annually appropriated installment payments from a specific source of revenue isolated from the City’s general fund, and the City will own the facility debt-free at the end of the lease term. The financing is “off-balance sheet” to the City of Atlanta and will not impact the City’s debt capacity.

Get the complete print out of this MUNICIPAL LEASE-PURCHASE FINANCING whitepaper now.

Lenwood A. Jackson, Sr. Justice Center – References

City Court of Atlanta

Lenwood A. Jackson, Sr. Justice Center

Judge for the City of Atlanta Lenwood A. Jackson

To Whom It May Concern:

I serve as Judge of the City Court of Atlanta, Georgia and Coordinator of Facility Development. I recently had the pleasure of working with Garfield Traub Development on the development of the new City Court of Atlanta, which had been a goal of the City for over five years. I was deeply impressed with Garfield Traub’s dedication and display of expertise that they and their team showed in helping the City accomplish its goal.

As the leader of the City’s development team, Garfield Traub directed the development with skill and professionalism, including the assembly and acquisition of the development site, which was held by five different private owners. Garfield Traub’s knowledge and leadership of “friendly condemnation” facilitated the timely and efficient control of the site by the City.

Garfield Traub also coordinated the efforts of the investment bankers, bond counsel and legal counsel in structuring the project financing, ensuring the best execution and lowest cost of occupancy for the City. The Court was delivered within schedule and substantially under budget in November 2003.

This was a very complicated transaction fraught with difficulties, including political challenges, all of which Garfield Traub and its team worked through successfully. The City of Atlanta is very pleased with the outcome. I have no hesitation in recommending Garfield Traub Development to you for the development of your essential facilities.

Respectfully,
Judge Lenwood A. Jackson
City Court of Atlanta

 

President of Jackson Securities W. Bruce Gow

May 10, 2011

To Whom it May Concern:

I am President of Jackson Securities, a full service investment bank that provides a broad spectrum of investment banking and brokerage services to institutional and retail clients throughout the United States. I had the pleasure of working with Ray Garfield and his firm Garfield Corporation, now Garfield Traub Development LLC in its role as Development Manager for Atlanta and its City of Atlanta Municipal Court, now known as the Lenwood A. Jackson, Sr. Justice Center.

At the time of Garfield Traub’s introduction to the City, the Judges were housed in an old and unsafe facility with little hope of moving to a new and secure court because of City priorities placing a new facility on a bond referendum 5 years in the future. Garfield Traub engaged Jackson Securities to help craft a creative financial solution that significantly shortened the time it would take to enable the safety and security of our Judges and the citizens of Atlanta. Together, we identified an existing and reliable source of City revenue separate and apart from the traditional tax revenues entering the General Fund. The City’s historical $25 million in annual Fines and Forfeiture revenue were used to secure an Annual Appropriation Lease, and allowed the City to transact the business of paying for the design and construction of the new Courthouse; thereby avoiding the wait, or indeed the risk of a referendum to approve the sale of General Obligation Bonds. In 2001, when the City engaged Garfield Traub as its Developer, to my knowledge there were very few if any private sector firms thinking in these creative terms, much less actually transacting what is today known as Public Private Partnerships.

Continuing our collaboration, Jackson Securities and our underwriter’s counsel worked with the City and their Bond Counsel in structuring an Agreement with the Georgia Municipal Association, Inc. to issue over $55 million in Installment Sale Program Certificates of Participation, which were rated AAA.

Very importantly, the project was completed ahead of schedule and below budget.

In my opinion and in the opinion of our firm, the leadership, creativity and integrity of the Garfield Traub organization was critical to the success of this facility, a facility that helped greatly improve an older part of downtown and that sets a standard in both design and safety for our City.

I highly recommend Garfield Traub to any community in need of essential public facilities and would work with them again whenever the opportunity arises.

Respectfully,

W. Bruce Gow

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