Special Purpose Entities in Real Estate Transactions: Structuring and Documentation

Lenders usually require that the owner/borrower of commercial real estate is a special purpose entity (SPE) adequately insulated from related parties' insolvency or bankruptcy. The goal is for the SPE entity to be "bankruptcy remote."

The bankruptcy-remote SPE must be structured so that it is unlikely to file or be subject to a bankruptcy petition and prevent substantive consolidation with any parent or affiliated entity that may become subject to a bankruptcy or insolvency action. Existing entities should be examined and, if necessary, reformed to qualify as a "recycled entity."

Single-member LLCs have become a common form of ownership and present additional structuring to prevent the entity's dissolution due to events affecting the sole member.

Listen as our authoritative panel discusses best practices for structuring SPEs to achieve bankruptcy remoteness and avoid substantive consolidation. The panel will review single purpose and separateness provisions that appear in the owner/borrower's entity documents, requirements particular to single-member LLCs (including special or "springing" member provisions) and recycled entities, independent director qualifications and documentation, and best practices in drafting and reviewing non-consolidation opinions.

1. Structuring a special purpose entity
   1. Separateness provisions
   2. Barriers to filing for bankruptcy or insolvency
2. The recycled entity: requirements to qualify
3. Single-member LLCs
   1. Requirements of Delaware entity laws
   2. Special or "springing member" provisions
4. Independent directors
   1. When required
   2. Qualifications: ID providers
   3. Independent director documents
5. Non-consolidation opinions
   1. When required
   2. Case law analysis
   3. Determination of pairings

The panel will review these and other noteworthy issues:

• What kind of entity is acceptable, and what provisions should be included in the entity documents for an entity to qualify as an SPE?
• What is a recycled SPE, and what are its additional requirements?
• What are the additional drafting considerations for single-member LLCs?
• What are the current requirements relating to independent directors, and how is the hiring of the independent director documented?
• What are the components of a non-consolidation opinion, and what are the proper pairings to be considered in the opinion?