Need some advice from someone familiar with RE legal matters. We have multiple LLCs, we would like a corporation to own them all in order to make it simpler for us. Is there a way of doing this, while keeping liabilities separate? Example would be, lets say one of our projects defaults, we would need a structure where only the LLC would go bankrupt and the corporation would not get impacted.
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Yes, it is possible. Each LLC is a separate operating entity. You need to check with your attorney but you can set up a corporate holding entity with each LLC operating separately.
This is the basic structure of REITs. Creditors prefer to provide non-recourse financing on single purpose entities.
See UDR's 10 K- exhibit 21 for an example.
It is common for real estate companies to have SPE's for each property/project. This is actually usually a requirement of the lender so that specific property is insulated from a corporate bankruptcy (ensuring that they are first in line to taking over the property if it stops cash flowing).
It VERY rarely works the other way around. In that the main entity is insulated from giving back a building. You need to be a very strong firm and a strong asset to have a non recourse loan. I guarantee you if you have to ask this question there's no way you are getting a non recourse loan unless its low leverage and a performing asset.
If its a value add or development project forget about it.
Agree with the general nature of SHB's response that structure, in and of itself, doesn't really do the heavy lifting on answering the question of whether or not you will be able to keep your liabilities separate. That really boils down to the nature of the properties, how they are performing, and how well they are capitalized. Lenders like structure that favors them and look through structure to answer the question, "How am I getting paid if this goes south?".
Technically speaking, you're talking adding another (corporate) layer vertically between the horizontally-owned, property-level LLC's and the owners. The simple answer is that you can do that. But, generally speaking, moving the properties under that umbrella doesn't really change the equation relative to where you are now with respect to isolating the liabilities. If you can get non-recourse financing under the current structure in today's market, you should be able to if you put them under the umbrella of another corporation. If you can't, you probably won't be able to do that with a new structure. There are still reasons you might want to consider it.
My two cents . . . 1. Speak with an good accountant who is versed in this type of thing and/or a good attorney. 2. Definitely re-familiarize yourself with the loan agreements for the debt already in place on the properties.
Yea I should have clarified my question. SPE will exist, I was just trying to consolidate it under one corporation to streamline everything. This question has nothing to do with liabilities. I am simply referring to a corporation owning a LLC. The only reason I asked this is because on the LLC application it just asks for a name so didn't know how to fill this out.
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