Word: leaseback
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...Brazilian expedition, Hilton broke ground for hotels in Rio de Janeiro and Brasilia, made plans for construction of another in São Paulo. Total cost: about $21 million. A Brazilian corporation, partly financed by British interests, will build the hotels for operation by Hilton under his customary leaseback terms: a third of net profits will go to Hilton Hotels International, two-thirds to the owners...
...Generations. Norman Tishman took over as president after World War II (the company now has nine Tishmans ranging through three generations), devised a better way to finance his buildings. Irked by the necessity of tying up millions of dollars of company capital in buildings, he worked out a sale-leaseback plan. Under this system, Tishman sells a new building outright to a corporation (usually an insurance firm), leases it back at about 7% a year and operates it. The company can not only use its capital for other projects, but also gets a tax break. Its lease payments are counted...
...sell & leaseback" deal was doubly advantageous. Yale would get a fairly sure tax-exempt income of 5.3% on its investment. Macy's would get its $4,500,000 out of dead brick & mortar into lively working capital, still have the use of the building. Since the rent is taxexempt, it is probably lower than Macy's would have to pay to a taxpaying owner...
Unhappy Treasury. But the U.S. Treasury was not quite so happy about the deal. It has been concerned about the problem of "sell & leaseback" since 1945, when Union College of Schenectady bought, for $16,150,000, the buildings of Allied Stores Inc., and leased them back to the company. Soon other colleges were buying not only real estate but commercial businesses as well. So many U.S. stores and other enterprises have sold their property to tax-exempt institutions* that the Treasury is now losing an estimated $1 billion a year in income taxes. A survey by the American Council...