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The Challenge
Legal Entity.
A local investor operated and managed commercial real estate assets, and decided to expand into single family homes. The investor designated a single family home in a desired neighborhood within a vibrant city, and sought to operate the property as a rental. The investor also held passive and active investments in various commercial real estate assets and needed to mitigate any risk of this asset class to the others. Beplace was tasked with obtaining cash-out financing for the property from an identified lender using a structure that accounted for such risk while allowing for a possible consolidation of a controlled group for tax purposes.
The Solution
Finance, and Add-Ons.
The local investor engaged Beplace to help prepare, approve, and close the transaction and contracted a legal team to provide legal support. Beplace proposed a simple legal structure whereby the property would be placed into a limited liability company, which would then be the borrower on a newly obtained loan. The investor could then hold the interest in the new entity either personally or through another entity within a parent-subsidiary setup - the latter would have provided the framework for a tax consolidation. Although there was a slight risk to using a single entity to both hold the interest in the property and operate it, the local investor agreed with Beplace that a multiple entity structure for a single family rental may be excessive.
The Result
Cash-Out Financing.
Beplace formed the limited liability company, which was then used as the borrower for the loan. The legal purpose of the new entity was limited to this single family rental property, which along with other risk mitigation strategies effectively limited the risk to the investor's other assets. The local investor opted to personally hold the interest in the entity, and the lender agreed to a provision in the loan documents allowing the investor to reorganize the entity structure and ownership for estate planning purposes. The investor was able to used our solution and add-ons to setup a business that obtained a loan with a cash-out component - the funds were placed in an account at a local bank in the name of the borrowing entity. The investor was able to use the borrowed cash for any business-related activity not limited to this particular property.
* Beplace includes agents, directors, employees, managers, owners, or other stakeholders of Beplace whether individually or through Beplace.
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