A significant portion of the commercial real estate lending market has been premised on a structure wherein a borrower is a “bankruptcy remote entity” or “special purpose entity” (SPE); the goal being that the borrower’s primary asset that secures a loan is isolated from the financial affairs of the borrower’s affiliates. By using an SPE structure, a lender is provided a level of comfort that the insolvency of a party related to the borrower which may have complex lender/creditor relationships, will not render the borrower insolvent, or cause the borrower to file for bankruptcy protection if the related party files for bankruptcy. This comfort level may not be as high given a recent decision in the General Growth Properties Inc. bankruptcy case.1
In General Growth, the SPE structure was used by General Growth Properties Inc. (General Growth), the ultimate parent of hundreds of debtor and non-debtor subsidiaries and affiliates (GGP Group). The primary business of the GGP Group is the ownership and management of shopping centers. The mortgages for a number of these properties were separate obligations of stand-alone subsidiaries (the SPEs).
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