Continued from Page 22
any individual or other corporate entity;
n Prohibit dissolving the entity except in
the event of specific enumerated occurrences and allow the independent manager
or director the specific authority to continue the life of the SPE; and
n Prohibit the amendment of the organi-
zational document without the lender’s
The independent manager or director should not be affiliated with the SPE;
its owners, managers or directors; or the
lender. Because of the expanding need
for independent managers and directors,
a cottage industry has developed in which
numerous companies and individuals have
implemented comprehensive and efficient
systems and procedures for offering their
services as independent managers or directors. Fees for these services are relatively nominal and may range from $1,200
to $2,500 per year.
Keep in mind that the independent
manager or director is not involved in the
SPE’s daily operations. This individual’s authority should be limited to the approval
of specific acts of the SPE that affect its viability, such as the approval of voluntary
petitions in bankruptcy, the continuation
of its life upon dissolution and the approval
of the transfer of the entity’s assets.
By limiting the independent manager’s
or director’s authority, SPE-owners may
alleviate concerns they might have about
their ability to control the entity’s direction, day-to-day operations and assets
while also providing the lender with the
protections it requires.
An SPE often gives a lender increased
protection against potential borrower
bankruptcies and potential delays in its
collection efforts, but it will not eliminate
all bankruptcy risks.
Although the entity’s organizational
documents often contain language and
provisions that prohibit the filing of a
bankruptcy require the independent
manager’s or director’s approval to file
for voluntary bankruptcy, SPE-owners
may disregard such provisions.
There is no legal way to prevent an entity or an individual from filing for bankruptcy. The bankruptcy court likely will
be unaware of the requirements contained
in the SPE’s organizational documents. It
is the lender’s task to bring the lack-of-authority issue to the court’s attention as
part of the bankruptcy proceedings.
Another unavoidable bankruptcy risk
is involuntary bankruptcy initiated by the
SPE’s other creditors. Granted, because of
its limited purpose and the restrictive nature of the lender-required provisions in its
organizational documents, the SPE should
have limited creditors. As with the prohibition on filing bankruptcy, however, SPE-owners may disregard those provisions and
acquire additional financing or credit, thus
increasing the possibility of an involuntary
Risks continue to expand in the lending world. Creative solutions to limit those
risks will be vital in the years to come.
An SPE may not be the perfect solution,
but lenders may increasingly use this
tool to protect themselves from watching their portfolios deteriorate again in
If you think your bank
can fund on time,
We have a bridge
to sell you.
Need a bridge loan fast?
Come to Meecorp.
It’s finally ok to burn
your bridges with banks.
Bridge – Mezzanine/Equity – Land Subdivision – Construction – Renovation Financing
WWW.MEECORP.COM / 201.944.9330
2115 Linwood Avenue • Suite 301 • Fort Lee, New Jersey 07024
Bridge over Troubled Water
Continued from Page 24
Tenants, on the other hand, are typically
not in the real estate business. They may
look at their lease every five to seven years if
issues arise or when renewal options come
around. Familiarity with the lease is a matter of mutual importance, however.
The truth is that tenants are defaulting
more often than most commercial real estate professionals have ever seen. So it’s
time to dust off the documents and look
at the default provisions.
“Before offering creative
solutions ... your
clients should run the
numbers to ensure that
the economics warrant
When do they kick in? Is there a cure
period in which the tenant can remedy
the cause of the default? Is the cure period
different for monetary and nonmonetary
defaults? Once a default is established,
what are each party’s remedies and obligations to mitigate damages?
Also, do not overlook the bigger picture: Is the document enforceable? Make
sure that whoever executed the governing document still exists and that there
has been a proper paper trail for all of its
assignments and assumptions — even if a
transfer occurred by corporate merger.
This caution applies not only to the
primary governing document’s signatory
but also to the ancillary documents, including the guarantee, the letter of credit
and any amendments.
Plus, advise your clients to clean up
any administrative issues that are not
documented properly. It’s much easier to
do so when a tenant is in good standing
than when the landlord is serving a default or eviction notice.
Once clients have analyzed their assets
and the risks associated with each tenant thoroughly, they should be proactive
in devising solutions to keep the revenue
It is easier to address these issues with
tenants before they default on their lease
or before they file for bankruptcy, which
makes the lease subject to acceptance or
rejection by the bankruptcy trustee.
Sound business judgment should guide
any solutions that your clients derive. Tenants have a significant amount of leverage,
and many landlords are offering concessions like never before.
Before offering creative solutions to a
tenant in the hopes of keeping the building occupied, however, your clients should
run the numbers to ensure that the economics warrant these concessions.
n n n
Amid the financial market’s turmoil and
the deal drought in the commercial real
estate market, brokers who take time to do
their homework, to assess the risks, and to
protect and preserve their clients’ current
assets will help keep their company and
their clients’ businesses afloat.
Seeking lending referrals from accountants?
AccountingWEB can deliver real-time leads to you!
Over 105,000 CPAs and accountants
subscribing weekly with the ability
to refer business to you.
Diane Williams, Sales Manager
(866) 688-1678 ext. 17
Rob Nance, Publisher
(866) 688-1678 ext. 16