• CoBank Lends to Publicly-Traded REIT

    Neglect | Risk | Waste • 12.19.16

    CoBank just doesn’t seem to get it.

    Month after month, quarter after quarter and year after year, CoBank extends questionable loans to what it considers “agricultural” entities. Loans to telecommunication companies, CoBank’s customers of choice, are usually defended as necessary for providing broadband access to farmers. And despite the fact that CoBank is only authorized to loan to cooperatives, it loans to large multinational corporations all the same.

    What could be worse? 

    In November, CoBank finalized its participation in a $1.55 billion loan to Cyrus One LP, a limited partnership under the umbrella of CyrusOne Inc. The latter is large enough to be traded on the NASDAQ, meaning it is investor-owned – by definition, it cannot be a cooperative. CyrusOne Inc. is a real estate investment trust (REIT) which focuses on global data centers. 

    For those who are unfamiliar with those terms, don’t worry: REITs and data centers aren’t commonly discussed outside of their respective industries. A REIT is a tax-exempt trust, often publicly-traded, which invests in real estate. REITs are usually cited by tax experts as a tax avoidance vehicle. 

    Often, REITs will specialize in commercial properties or residential properties. But CyrusOne Inc.’s investment strategy is far more specific – it invests in global data centers, buildings which house servers and cloud storage for websites and online content providers.

    Can CoBank offer any justification for why it’s extending a loan to Cyrus One Inc.?

    CoBank claims that it finances the construction, operation and maintenance of vital communications systems throughout rural America including the expansion of fiber optic networks and broadband Internet along with upgrades in wireless technology and satellite TV.”

    It’s debatable whether CoBank has the authority to do that, but what’s worse is that the loan to CyrusOne Inc. wouldn’t even fulfill that goal – there’s no guarantee that it would build data centers that would be used by farmers and ranchers in rural America. CyrusOne Inc. is global – the data centers it invests in could be serving customers in Morocco or Sweden for all CoBank knows.

    To top it off, CyrusOne Inc. is publicly-traded – a far cry from the cooperatives with which CoBank is supposed to do business. So this publicly-traded, tax-exempt fund is able to get below market rates from CoBank, which can only offer those rates because of its own tax exempt status. 

    Does that sound fair at all?

    This is a brazen display of either ignorance or arrogance on CoBank’s part. It needs to seriously reconsider whether this loan is within its mission, and Congress needs to affirm that decision.