Does The Public Need Privacy?
Local and state governments begin turning to private real estate developers, such as United Trust Fund, to develop municipal projects through sale-leaseback financing.
Katie Foxworth

While public-private partnerships have been growing in popularity in the development of mixed-use projects, especially in urban areas in need of revitalization, it is not so common for local governments to engage in sale-leasebacks with a private developer. Change is in the air, however.

Miami-based United Trust Fund (UTF), which has been structuring and purchasing corporate sale-leasebacks and build-to-suit projects since 1972, has entered the public arena by adding a municipal division to its build-to-suit corporate division.

“UTF saw a need by the public sector for development companies, like UTF, who had development expertise in build-to-suit real estate development,” says Jim Nolan, executive vice president and CFO. “The history of public projects with large cost overruns has almost become routine, and UTF believed that, for the most part, those overruns were unwarranted and avoidable.”

Therein lies the difference: with a private developing partner, public entities have a better chance of getting the project done on time and on budget. Moreover, the traditional method of using bond financing to construct government buildings is not always a viable option in the current economic climate. Budget shortfalls in the public arena — in large part due to increasing pension and healthcare costs — are eating away at the ability of local municipalities to maintain services. Therefore, private sector companies, led by United Trust Fund, are beginning to fill the gap by introducing government officials to new funding mechanisms, such as the sale-leaseback or the build-to-suit model with an option to lease. And, just as in the private sector, there is no obligation on the part of the city to make any kind of payment until the project is completed.

“The municipality has the option of purchasing the project at completion for a pre-agreed price or entering into a long term lease agreement,” explains Nolan. “This greatly expands the municipal sector's ability to obtain new facilities without the need for a large amount of capital to pay for it prior to completion.”

That's because United Trust Fund puts up the cash and assumes all the risk. “The city is not at risk for anything until we turnkey and deliver the project to them,” Nolan reiterates.

From the outset, UTF provides all the capital needed to acquire the land and engage third-party professionals, such as civil engineers for site plan and soil evaluation; due-diligence professionals for environmental evaluation; architects for project programming and design; and a general contractor for construction. And, because United Trust is already immersed in the real estate development industry, it has these third-party services at the ready. The project can be moved forward quickly and in the same manner as the company's regular business lines.

“We would build projects in the same manner for a local or state government entity as we have for Bank of America, CVS, Publix, Lowe's Home Improvement and other commercial accounts,” Nolan says.

In its more than 30 years in business, United Trust Fund has completed several billion dollars of corporate sale-leasebacks. Most of its private sector build-to-suit activity is concentrated in Northern Virginia, Maryland, Delaware and Florida. Currently, UTF is developing new facilities for CVS, local and regional banks, Lowe's Home Improvement and other national and regional retailers who require freestanding locations.

In the newly entered public sector, UTF is rapidly growing its business. The company is on the board of Public Private Partnership, a national trade organization designed to take the abilities and talents of the private sector and, through partnership with the public sector, bring efficiencies and cost savings to capital projects. It also is currently underway on a $5.5 million build-to-suit project for the city of Hollywood, Florida. UTF acquired the land and will break ground on the 16,500-square-foot complex, which will house fire and police stations, this summer.

Jacqueline Gonzales, director of economic development for the city of Hollywood, believes that finding alternative mechanisms for completing capital projects is “the wave of the future for local governments.” And, as the benefits of sale-leasebacks and build-to-suits become more widely recognized and understood, she anticipates more communities will begin to embrace these alternative financing concepts. Municipalities might also discover that working with the private sector is not as radical or alternative as they might have imagined. While it might be considered a “novel” concept, United Trust Fund certainly doesn't consider it a “radical” concept. That's because, according to Nolan, the end-goal is fundamentally the same.

“We find that working with municipal organizations is quite similar to working with the private sector,” he says. “In both cases, we are working with people and we are providing our expertise, capital and talents to deliver the same product to both entities: a high-quality, functionally designed real estate project that meets the goals and needs of the user.