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Left to right: Andrew Kassner and Joseph Argentina , Drinker Biddle & ReathLeft to right: Andrew Kassner and Joseph Argentina , Drinker Biddle & Reath ()

Over the years, the real estate ­industry relied heavily on securitization vehicles to finance commercial real estate projects. The loans are ­packaged and then sold in pools to investors. Various mechanisms have been developed to ­facilitate collection of the loans without the uncertainty of a borrower bankruptcy filing that could delay and increase the costs of collection. Lenders in these secured transactions often use special purpose entities, or SPEs, to attempt to limit the risk of a borrower bankruptcy filing. While these structures can vary, the concept is to create a separate corporate entity whose only ­purpose and asset is the one real estate project, and the only significant obligation is the mortgage loan. The SPE is isolated from the financial affairs of the corporate parent or affiliates. The lender requires the borrower to appoint an independent director to the board from a mutually acceptable source, and unanimous board approval for certain key decisions, such as the decision to file for bankruptcy. Consequently, a lender is able to reduce the risk of delay after default and high costs of collection, and the ­borrower benefits from lower interest rates and fees from the lower cost loan.

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