An asset is defined as “anything having commercial or exchange value that is owned by a business, institution, or individual.” Asset financing seeks to convert particular assets into working cash in exchange for a security interest (the “lien”) in those assets. Placing a security interest upon an asset creates risk to that asset; if the financing does not realize its objectives the liened asset will be negatively impacted. With the advent of “scientific finance” – promulgated in part through the Chicago School of Economics and pragmatized largely at the Chicago futures exchanges – it is possible to (a) mitigate financial risk, (b) leverage the asset and (c) generate a positive net cash flow sufficient to underwrite operating costs and expenses.

Banking is fundamentally a trading activity and risk management has grown in significance. For example, the Annual Report for one major bank describes its "...growing business in structured finance, high yield and leveraged credit...the external environment is changing...alternative markets for transferring credit risk - for example, secondary loan trading, credit derivatives, and securitization - are growing rapidly." The bank "…trades a wide range of products globally, including foreign exchange, derivatives, debt securities...primarily [related] to customer flows." In the year 2000, "The distribution of daily Net Trading-Related Revenue ("NTTR") was positive for 74% of the days...the average daily NTTR was $2.8M...there were no occasions on which actual daily NTTR fell outside the range predicted by the previous day's risk measurement units (“RMU”).”

Conceptually, non-risk structures could be used to finance the Du Sable Park. Consider the following:

1. Hard assets, such as title to the land, would be converted to cash (the “liquid asset”) by a hypothecation to establish a working line of credit. The hypothecation places a lien upon the asset but does not represent a transfer of title; the rights of ownership remain undisturbed. The hypothecation value (the “loan-to-value”) would typically be 50%: acreage with an appraised value of One Million USD would generate approximately Five Hundred Thousand USD.
2. During the term, the Five Hundred Thousand USD liquid asset would be held in cash or cash equivalents rated AA or better (by Standard & Poor’s or Moody’s) that remain free and clear of all liens, claims, and encumbrances. Because the liquid asset holdings are high quality and free of encumbrance they will maintain value throughout term and the structure can be described as “non-depletion” of asset value.
3. Please note the distinction between the hard asset and the liquid asset: the hard asset has been hypothecated to create a liquid asset for trading, but the liquid asset would remain free and clear of liens, claims or encumbrances: there is no risk of depletion to the liquid asset.
4. Given average positive daily Net Trading-Related Revenue (“NTTR”), a portion of NTTR would be directed to the asset provider and the balance would be available for ongoing administrative, operating and maintenance costs. The return to asset provider should be comparable to, or exceed, the risk-free rate of return from one-year United States Treasury Bills (at 3.60% as of 20 June 2001).
5. Incorporating a Charitable Remainder Trust (“CRT”) could provide substantial tax benefits to the asset provider (the “Donor”). Because of the “non-depletion of asset value” the remainder value would be 100% of original asset value and, depending upon the Donor’s facts and circumstances, the tax deduction could equal the original asset value. Bear in mind, in addition to the tax deduction the Donor would realize a revenue stream for either twenty years or their lifetime.

Scale is an important aspect of finance and this structure is not practical for a single plot of land. But at a regional level with acreage having a substantial aggregate value this structure could be a viable means to finance community gardens.

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