Payment In Lieu Of Taxes - "PILOT" Financing...

A "Payment In Lieu Of Taxes" (commonly called a "PILOT") capital funding approach provides the commercial real estate development project with a funding program alternative that can be made to work for the benefit of the developer, project and regulators.  Traditionally, the main use of the Payment In Lieu Of Taxes program has been to abate a portion of the real property taxes (and other taxes) the developing project would otherwise have to pay over a defined period (usually a 10-year deal).  The emerging commercial real estate project would have a lower fixed expense costs as a result of the PILOT.  This condition would tend to boost the near-term EBITDA stream resulting in the proposed project being able (theoretically) to increase the amount of long-term debt the project could support.

But, to the savvy commercial real estate development investor and/or developer the PILOT program can reach way beyond the confines of enhanced permanent mortgage support and create an opportunity for a capital funding plan component that may be brought to bear during the pre-construction phase or construction phase.  These are the most critical areas where working capital dollars are the easiest to spend, hardest to justify and nearly impossible for the developer to raise from a third party because the third party ends up taking 50% to 75% of the total transaction's equity security ownership.

PILOT reaches beyond that and provides a rebate that averages 25% of the total property taxes in most states (check with RMC to find out what the entitlement program requirements are for your pending project).  In larger scale projects, this can amount to a very significant sum - so much in fact, that it can become part of the capital funding plan.