Wealth Opportunities in Commercial Real Estate: Management, Financing, and Marketing of Investment Properties

Problem Number 4

Let us assume that the Bell Center was owned by Bell Center, LLC, and that entity is solely composed of the three principals, John, Bill, and Fred. In December of 2004, as in Problem Number 2, a loan is applied for from Securitization Bank. In conjunction with the refinance, in anticipation of the eventual sale of the Bell Center, the managing members decide to convert the LLC ownership into three tenants-in-common: John, LLC, Bill, LLC, and Fred, LLC, with each LLC owning a one-third interest in the property. In February of 2005, a 10-year loan for $10,000,000, interest-only for the first five years, is closed.

The borrower under the new loan is John, LLC, Bill, LLC, and Fred, LLC, jointly and severally. The deed of trust contains a provision that indicates that the lender may call the loan “upon the sale or transfer of (i) all or any part of the Property, or interest therein, or (ii) beneficial interest in Borrower (if Borrower is not a natural person or persons but is a corporation, partnership, trust, or other legal entity)…” The Deed of Trust goes on to say that it is deemed a sale or transfer only if, after the sale or transfer, the result is “an aggregate of more than 49 percent of such corporation's or limited liability company's stock or membership interests … being held directly or indirectly by a party or parties who are not now holders of more than 49 percent of such corporation's or limited liability company's stock or membership interests.”

Exhibit ...