Working through a contract on an acquisition, was just curious for thoughts on a sticking point. Realize this is purely an opinion board....
Buying a property from an SPE. We are requesting in the contract a post-closing holdback (3% of purchase price held in escrow for 12 months). When we have purchased from larger institutions we have not required this because they were large funds we could go after, but given the SPE nature of the selling entity, we are asking for it. Seller is balking, says they will be dissolving the entity so they can't be kept on the hook for 12 months after sale closes.
Any ideas as to compromise here?
They're probably developing or owning these properties under one umbrella entity. They're dissolving this entity because they likely have investors in it that will want a final tax return. Plus, they don't have to continue to pay CPAs year over year to prepare returns for an entity that has no assets and solely an escrowed funds account.
If they are operating with an umbrella company (my company actually does this) I'd have umbrella company do a side letter with you indemnifying you against certain concerns you may have. I'm assuming here that you're having concerns since you're requiring a 3% holdback. Not sure why else you'd want that money held back if you've properly done your due diligence.
This side letter could reference a maximum amount that they seller is obligated to pay under certain conditions. This could get as detailed and intricate as you want with as many stipulations as you can think of. If you're not convinced of the umbrella company's ability to provide this kind of cash, I'd have the individual guarantors in the company (if this isn't a public company) also guarantee this side letter (if that makes sense).
Everything I've said could be irrelevant, just not a lot of detail to go off of from your original post.
I believe the property was part of a fund, it's the last asset in the fund so once it sells, the fund will close and all LP investors will be paid out. Perhaps that is why they are pushing back? Isn't it standard for a survival period on reps and warranties? So if something happens post closing, buyer can still go after seller?
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