ABC optimally models inverted leases, also known as lease pass-through or master-tenant agreements. These financing structures have been used with Section 47 historic rehabilitation tax credit transactions, and are currently popular in the residential solar market. Applied to a portfolio of residential installations, an inverted lease is structured to pass the credit or grant to the equity investor and return full ownership of the asset to the developer.
The inverted lease analysis in ABC includes the developer’s and investor’s changing interests in the lessor and lessee entities, as well as the use of the credit, depreciation benefits, and the ongoing cash and tax flows. ABC optimizes the underlying rents to provide the most efficient economics to both parties in the transaction.