Master/Tenant Inverted Leases
ABC models inverted leases, also known as lease pass-through agreements. An inverted lease is structured to pass the credit to the equity investor as a lessee, and allow the developer to retain full ownership of the asset as a lessor. These financing structures are popular for tax equity investors that are interested in federal tax credits but have limited capacity to monetize depreciation benefits.
The inverted lease analysis in ABC considers the economic interests of both the developer and the equity investor simultaneously. ABC optimizes the underlying rents, the rental prepayment, and the allocated rent profile to provide maximum efficiency to both parties in the transaction.
A common variation of the inverted lease is the master tenant structure. This variation involves four parties: an owner partnership as the lessor, a master tenant partnership as the lessee, an Investor who participates in the Master/Tenant partnership, and a Developer who participants in both partnerships.
This structure provides lower-cost financing for the developer by allocating a portion of the depreciation benefits to the investor.
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