Mmm, I think we're mixing up some numbers here. Let me try to break this down for clarity.
Using the numbers in the report, the $17M in taxes would be paid after just 10 years, not 40 years, because the asset appreciated from $50M to $108M in 10 years and the buyer wanted liquidity at that point. After 35 years, the FMV of the asset is $740M, and tax liability would be (740 - 50) * 1/(20 + 3.8 + 5) = $198.72M
So, the question is not whether it would be cheaper than paying $17M in taxes, but whether it would be cheaper than paying ~$198M in taxes.
A couple of other things:
1) it's not clear they are taking out a loan against the asset. The report uses line of credit interchangeably with loan. If it's just a line of credit then they are only paying interest on the credit they use not the full loan amount upfront.
2) loan/LOC allow the capital to be liquid while continually having exposure to appreciation. This is valuable in itself because otherwise you have to make a choice between having exposure or remaining liquid. It's challenging to put figures to this aside from the obvious statement that a liquidation event results in a loss of 8% compounded YoY appreciation. This can be partially mitigated by repurchasing cheaper assets at the cost of some of the liquidity.
The report says:
> I’ve seen anywhere from 0.5 percent to 3 percent, even in the current interest rate environment
So, in the scenario where one takes out a loan for $97M at 3% interest after an asset of $50M appreciates for 10 years, if we assume that provides sufficient liquidity for the borrower to not take out subsequent loans during the following decades, then after 25 additional years the borrower would have paid ~$41M in interest. At 0.5% they'd pay ~$6M.
In an alternate scenario, if we assume the borrower takes out a loan for 90% of equity at 10 years, 20 years, and 30 years, then at 35 years they would have paid $127M in interest on a 25 yr loan + 15 yr loan + 5 yr loan at 3%. At a 0.5% interest rate they would have paid just $20M in interest.
All these scenarios are less than the $198M in taxes they'd owe while also giving them 8% exposure.
I do not have figures for how much the bank gets. My assumption is that they would negotiate terms where the interest rate is lower if the bank receives more of the asset or vice-versa. There's no reason for the loan recipient to take the terms if it's bad value for them relative to paying taxes at time of liquidation.
On the whole, I think the report makes sense as a reasonable approach for avoiding excess taxation.