Crain’s Chicago Business quotes Rachel Weber, UIC professor of Urban Planning and Policy and GCI Research Fellow, on a Chicago firm acquiring properties from state and local governments via sale-leaseback agreements. This strategy is frequently used in the private sector and allows the entities to deal with budget gaps and pension obligations.
Oak Street Real Estate Capital recently made a $2 billion offer to the state of Connecticut and its capital city, Hartford, to buy multiple government-owned buildings—from libraries to offices to transit-related properties—and lease them back on long-term deals with escalating rent. It’s a strategy they have successfully used for nearly a decade in the private sector. Now they’re trying to convince politicians and municipalities to look past stigmas tainting the privatization of public assets and embrace sale-leaseback deals as a way of plugging budget gaps.
Government tenants are about as investment-grade as they come, and many cities are vulnerable, with downgraded credit ratings that make loading up on debt more difficult. “And you have a segment of the financial industry that knows how to do these public-private deals. They are kind of thinking of themselves as a savior in offering these opportunities,” says Rachel Weber, professor of urban planning and policy at the University of Illinois at Chicago.
But convincing the public sector to play along could be a heavy lift. While net lease deals have become a more mainstream way for corporations to raise capital in recent years, snakebitten taxpayers have made it tough for local and state politicians to embrace such deals.