All Forum Posts by: David Miller

@Adam Philpot Loans with insurance companies often have attractive rates with long(er) terms and long(er) amortization periods but the prepay penalties take into account the cost of the loan for the remaining balance owed, which ultimately results in a much bigger penalty. If you plan to hold the asset for an extended period, IC loans can be really attractive but if you intend to have a shorter hold period or to resale within a short period, the costs to place this type of debt is less attractive.

@John Hagen Sure thing.  Look forward to connecting.  

@John Hagen I have done a bunch of sophisticated TIC structured acquisitions of multifamily apartments with third party investor entities that 1031 their equity into the deal. They own a partial interest in the real property via their entity that previously owned the relinquished property (or a single member LLC comprised solely of the entity) and sponsor (and its other investors, if any) take the remaining partial interest through a separate entity. You then have a co-tenancy agreement between the entities governing the operation, maintenance, financing, leasing, etc. of the property. I have financed debt using this deal structure with Fannie Mae and institutional lenders whose respective counsel have signed off on the ownership and co-tenancy arrangement.

@Fritz Krampe Sale-leasebacks require extra due diligence on the seller. As @Joel Owens mentions, why are they divesting themselves of ownership? Immediate questions are what entity will lease the property, what assets does it have and what is its relationship to the seller? Environmental issues are a big deal, as you are stepping into the chain of title and can have immediate exposure - a strong indemnification from the seller/lessee backed by a credit worthy guarantor is worth pursuing.

@Mark Vandzura I represent numerous sponsors who utilize syndications and the LP investors are typically a mix of individuals, LLCs, family offices and trusts. It is usually a function of the size and diversity of the assets the LP is deploying and tax considerations. Regardless, the LP’s liability for the syndicated asset should be limited to their investment amount.

Attorneys do disagree on the value of single purpose entities for each asset, but the SPE structure is often required by lenders, which may not be applicable in your case, because it restricts the business activities of the owning entity and can insulate the collateral from claims from other creditors. For those acquiring deals with passive investors (like the many syndicators on BP), the investors have the same motivations as lenders. Plus, syndications often involve different combinations of investors that mandates separate entities. in the case of your single member LLC, it is your call as to risk management. Do you want to want to mitigate risk with separate SPEs or utilize some general liability insurance for one entity with multiple assets?

In your case, I would still prefer separate LLCs because (1) insurance policies have lots of exclusions and exceptions and getting paid is not always easy or expedient and (2) I see little value in giving a potential creditor the ability to pursue multiple assets as collateral when a separate single member LLC can be established and maintained with relative ease and (3) single member LLCs are disregarded entities for tax purposes, so the tax consequences of having multiple single member entities is not burdensome. Others will have what they consider good reasons for having one LLC.

This is not legal advice - talk to your attorney and then make the decision.  

@Jordan Prentice Thanks for the reply.  I know a developer in that area.  I followed up with them and they actually have already looked at that particular property.  Small world.  

Is the 70 acres in The Woodlands?  

I had a deal a couple years ago that fell apart because this structure created too many issues. 

When you quitclaim from yourself to a LLC it is transfer to an entity controlled by you. So while that type of transfer can trigger an acceleration, the remedy is typically just to transfer the property back to you. But regardless you maintain control.

When an owner gives you a master lease with an opton to purchase, the owner is relinquishing some or all control of the property (regardless of how legal or equitable title is held).  If an acceleration is triggered or if there is a default, unwinding or fixing that structure - and the associated cash flow, “down payment” that often comes along with the lease, expenses, liabilities and obligations that go with it - can get difficult and complex and costly very quickly. 

I am not saying do not do it.  Master leases with options can be structured legitimately.  Both parties just need to understand the legal implications and structure the deal accordingly with good counsel.*  

* I recognize that last phrase is self-serving to my profession.  But doing it right on the front end is almost always cheaper and less painful than trying to fix it on the back end when the unexpected happens.