No, IPPD funds projects under a more flexible structure using private capital. This results in a process that is more efficiently managed, and where potential expenses are minimized because IPPD is an owner, not an agent.

There are several ways that an IPPD P3 is more efficient than typical bond financing. Instead of drawing the entire financed amount through tax-exempt debt, and the corresponding capitalized interest on that total amount, with an IPPD P3 the lessee only pays capitalized interest on what has actually been drawn to fund the ongoing construction. The amount of capitalized interest savings and avoided negative arbitrage on the invested bond proceeds can be substantial and help to quantify the benefits an Inland P3 has to offer.

Given the mismatch on the yield curve, compounded by the inverted relationship between municipal interest rates and U.S. Treasury yields, this creates material negative arbitrage, significantly adding to the project cost because the capitalized interest that must be paid on the entire amount of the proceeds is considerable. However, using an IPPD P3, the proceeds for a project, while committed in their entirety, are not drawn until the cash is needed to fund incurred project costs.

IPPD is a wholly owned subsidiary of Inland American Real Estate Trust, Inc.(Inland American). Inland American is a publicly traded, non-listed real estate investment trust with approximately $9 billion in equity. Inland American raises capital selling shares of stock. The scale, strength and liquidity of IPPD’s financial resources result in reduced execution risk compared to other financing mechanisms which is a key advantage of an IPPD P3.

Either party may own the real estate at the end of the lease term depending on whether the lessee chooses to organize the lease as a true lease (often called an operating lease) or a lease purchase (often called a capital lease). At the end of a true lease, under which lease rates are lower but there are no principal payments, ownership would remain with IPPD. On the other hand, a lease purchase incorporates a principal amortization component in each payment, which results in transfer of ownership from IPPD to the lessee at the end of the lease term. The flexibility of an IPPD P3 also allows for the lessee to convert or modify the lease type at nearly any point during the lease. There are a wide variety of reasons why our clients’ needs are met better by one lease type over the other. The professionals at IPPD are experienced in executing either type of lease and are committed to matching the best structure to their clients’ needs. To learn more about the differences in lease types please read our lease structuring white paper (pdf link).

IPPD can cater the lease terms and structure to best fit the objectives of the lessee. Some of the lease structure options include a lease purchase agreement (often called a capital lease) or a true lease (often called an operating lease). Depending on which lease structure is selected, there are significantly different financial, accounting and tax ramifications. A lease purchase includes principle amortization and must be reflected on the balance sheet of the lessee as debt. Under a lease purchase, a lessee would own the property at the end of the lease term. Conversely, under a true lease, there is no amortization component in the lease payment and the les sor continues to own the leased asset at the lease expiration. When structured properly, a true lease is not considered debt by Generally Accepted Accounting Principles (GAAP) and such a structure can contribute to successful balance sheet management. An operating lease typically requires lower cash flow for the lease payment since there is no principal amortization. Additionally, because an operating lease is reflected as an expense on the income statement and not a liability on the balance sheet, lending capacity is preserved for alternate uses.