There Are Very Different From You and I

by Christopher Menkin

To paraphrase American writer F. Scott Fitzgerald, the municipal and federal

government leasing sector are very different from the commercial leasing

sector. This was quite evident in the second day of the Association for Government Leasing and Finance Spring Conference held in Las Vegas on

Thursday, May 15.

A member of the audience at the “Federal Leasing: What Every Lessor Should

Know” summed it up that it should have been called “ Prime Contractor Leasing.”

He was referring to the Assignment Claim Act where a federal lease contract cannot be assigned and must always be with the prime contractor, meaning

all payments, situations, disputes, communication must go through the “prime

contractor.” It is almost a credit in reverse where the funder should be more

concerned with the original lessor’s credit than the lessees.

Terminations can happen via non-renewals, even vendor up-grades, and non-appropriation of funds are a reality. Terminations happen.

None of the panelists wanted to be quoted, and I was asked not to paraphrase

whatever they said either. “This is for the members only,” one told me after

the fully attended workshop.

Attorney Scott Woehr with Doyle & Backman, LLP, Washington,DC, said this

was a very small niche, highly specialized, who understand the credit, situation,

contracts, and unique “out” of non-renewals and no-appropriation, with the key

being the documentation and essential use analysis completed “up front.”

All agreed there was significant growth potential.

At another very well-attended workshop panelist attorney Tony Kushnir of Patton Boggs, LLP, said in an interview the governments are being squeezed for funds and here is an ability to exchange, up-grade, redevelop at costs that give a better return, and put property into better use....”The government cannot miss and the future will see a great increase in government leasing of both real and personal property.”

Several attendees told me the full workshop attendance was quite common. They

come to learn from each other, not play golf. At night, several told me they did

partake at the tables. Another comment would be how well dressed the attendants

were, almost as if they all had gone to Nordstroms. Many jackets, several wearing

ties, and the women were wearing business attire. This was definitely a different

group than others conference I have seen held in Las Vegas, Nevada.

The comradre was most evident at the Equipment Leasing Forum: The

Big Gamble for Funding Sources, the last workshop of the day at 3:45pm.

Five minutes into the meeting and the room was packed. The focus was

on small ticket leasing. This figure to those in the room was $250,000.

While they may do an accommodation of small amounts, this amount was considered “small ticket.”

There were bankers, originators, funders, attorneys, and it was not a question

and answer session, but more a conversation involving maybe 40 to 50

people, as if we were around a table at the bar: very relaxed, informative,

let your hair down, and a lot of truth about the reduced interested rates

and refinancing taking place. Who wins and loses as the broker takes another

commission and the investor does the lease.

This is a very sophisticated business. On more common topics, it appeared everyone believed that it was “talk” about what rates will go; most think

it will continue to go, and at worst, stay the same. No one was talking positive

about the future. No favorable view, and while they were doing transactions,

they were spending more time completing them.

I did not know anyone before I attended the conference, although I had spoken

with the executive director Graham Haulk, who’s Executive Assistant Brian J. Mandrier was also present. This was a very well-run, great handouts and

material, smooth operation. Haulk thought the attendance was small for

being held in Las Vegas, Nevada, but you had the serious and successful

attendees from all over the country, many from the Chicago area, Washington, DC, and the SouthWest.

There were several workshops I could not attend as I was attending others. Perhaps from my viewpoint the best was held with Jim Chritis of Convest Ltd.,

as moderator with Michael Gallo, CIT/Equipment Financing, John Merchant,

Peck Shaffer & Williams, LLP, along with Cambden P. Siegrist,Bowles Rice McDonald Graff & Love, PLLC.

“Are Hospitals a Risky Bet?” The panel discussed the pros, cons, current trends

and the pitfalls in engaging in hospital leasing and financing. Again, this

was one were the panel sat in chairs with the audience, not in front of a table,

and it was quite informal and got everyone involved. And while each panelist

did make a presentation, it really became an excellent open discussion with participation by all.

Mike Gallo of CIT really had it together. I talked with him afterwards, and

the statistics he was using came from the Equipment Leasing Association

report on healthcare and also other facts. I found out he was the chairman

of the ELA Municipal Committee.

This industry is going to go from $5.8 billion in 2002 to $7.4 billion in 2005

with 25% of the acquisition in leasing. It is a $1.3 trillion industry

with 80% HMO/PPO with great change in the growth of sub-acute centers,

outpatients (75%) and the fact 60% of hospitals are non-profit with 20%

being municipal.

While this sounds perfect for tax-exempt transactions, there will be a healthy

segment of “taxable” lease transactions due to consideration, timing, advantage,

and credit. Turn around time and the dynamics will also be a factor.

As a side-note, none of the attendees ever heard of Leasing News. The daily industry newspaper most often read is the ELT News from the Equipment

Leasing Association. I did get the distinct impression, the municipal-federal sector look down upon the commercial side. And this group is definitely

different from the rest of us. This is the top fraternity in the money college.

One more day. While Jeff Taylor and Mark McQuitty wrote some personal

conferences, I don’t take that approach, so I won’t write about the Blue Man

Group ( the AGLF bought tickets and we went as a group in our own section---

it was great) or that I had dinner with my high school sweetheart, we went

to the prom together and her husband who is a singer-musician, but the

story is I haven’t seen her in 42 years ( she was more gorgeous than I

remembered and still had the great personality in my memory. She still

had the smile that could light up a room and the great sense of humor. We became

fast friends. I hope to introduce she and her husband to my Sue.)

Friday is the last day of the conference, and maybe on Monday will

have a wrap-up.