What are the Characteristics of a Single Asset Real Estate case? (Second in a Series of Three)
Posted on Mar 3, 2010 in Business Bankruptcy, Chapter 11, Real Estate
A Single Asset Real Estate case usually involves a commercial building, apartment complex, or even vacant land. Generally, a Single Asset Real Estate case concerns a piece of property, or a project, owned by an an entity (a limited partnership, or more commonly now, a limited liability company). The entity’s sole purpose is to operate the property with funds generated by the property.
The most important creditor in a Single Asset Real Estate case is the entity’s mortgage lender. In some deals, the entity has secured financing from second-tier or mezzanine lenders. The Singe Asset Real Estate entity may also owe debts for taxes, utilities, or property management fees.
Under the Bankruptcy Code, a Single Asset Real Estate case has the following three characteristics:
- a single piece of real property or project (excluding residential property with less than four units);
- which generates substantially all of the income for the debtor (who is not a family farmer); and
- the company (or debtor) operates no substantial business other than operating the property or project.
A Single Asset Real Estate case is not limited to small projects. It can include large commercial properties. Even a large shopping center worth millions of dollars could be Single Asset Real Estate case. If you are the member or owner of a Single Asset Real Estate entity, there are benefits to filing a chapter 11 case. However, you have a more difficult road than a typical debtor in chapter 11. Our third and final blog in this series will explore the benefits and difficulties associated with a Single Asset Real Estate case.
We at Lakelaw know the details of Chapter 11. David Leibowitz taught the course on Real Estate Bankruptcy Law to graduate law students at John Marshall Law School. He was recommended for the job by former Bankruptcy Judge Ronald Barliant as a result of his work before the Bankruptcy Court. Jonathan Brand has had exposure to real estate cases not only at Lakelaw, but also during his tenure as a law clerk with two different bankruptcy courts. Lakelaw is available to answer any of your concerns related to Single Asset Real Estate cases or your other bankruptcy needs.