How to Lease Government Land for Construction & Leaseback the Improvements

The government sells and leases back some of its land as a cost-effective development strategy.

In the United States, the Bureau of Land Management manages approximately 258 million acres of federal land and approximately 385 million acres are managed by other federal agencies. Governments may enter into a sale-leaseback agreement with a private entity to benefit from tax deductions. The government sells its property to a private entity and simultaneously leases it back. The private entity exchanges its equity in the property for rental payments and generous tax benefits which include interest deductions, depreciation deductions and may even include investment tax credits, as well as a higher resale value. The government benefits from a cost-effective method of improving and constructing its land.

Things You'll Need

• Government properties list for lease or purchase

Instructions

1. Review the list of lands available for leasing or purchase as released by the BLM or other government agencies. Submit a competitive bid for the government land, higher than or equal to the government's acceptable national minimum bid.

2. Submit payments to the seller per the terms of the government land purchase if you are the winning bidder. Wait for 60 days after your payment for your official ownership to the land.

3. Conduct a sale-leaseback by leasing the land back to the government once you have purchased the land. Include in the sale-leaseback agreement, terms of rental payments and tax benefits for the government's review as the lessee.

4. Include in the agreement improvements that you propose to make to the land. Discuss the improvements and the associated costs with the government for its approval.

5. Negotiate the highest tax benefits and rental payments from the government as the lessee to cover the cost of improvements. Sign the sale-leaseback agreement with the lessee. Collect the rental payments and tax benefits from the lessee as agreed.

6. Arrange financing for any shortage of capital for the cost of improvements and construction. Complete the improvements to the land and construct the approved development.

7. Sell the land back to the government at a higher price based on the appreciated land value with the finished improvements and development. Release all ownership claims to the land.

Tips & Warnings

• You could end up with low tax benefits and low rental payments from the government lessee, which means more of your investment could be required for land improvements. Market conditions may prevent the land value from provide the return you had projected on the completed development even though you are obliged to sell the property back to the government.

References

• Congressional Budget Office: Introduction and Background

Resources

• "Real Estate Finance and Investment Manual"; Jack Cummings; 2010
• "Congressional Research Service"; Energy Projects on Federal Lands: Leasing and Authorization; Adam Vann; May 2011