single-purpose entity

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single-purpose entity (SPE)

A limited liability company or corporation that holds title to real estate and owes money to a lender as the result of a mortgage on the property, but which has no other assets or liabilities.The SPE will usually lease the property to another company, comprised of the same owners.That second company then executes leases to tenants,hires a management company or provides for necessary services,and generally incurs all liabilities associated with managing the property.This structure is usually required by a lender as a condition of extending a mortgage loan. It insulates the collateral from claims of other creditors. If the second company must file for bankruptcy because it is not able to pay creditors, that does not stop the lender from foreclosing unless the SPE also files for bankruptcy.If the SPE files for bankruptcy,it is much easier for the lender to lift the automatic stay and proceed with foreclosure because it has the only vote for issues such as approving a plan of reorganization under Chapter 11 (see bankruptcy).If there were many creditors,consisting of the janitorial service,utilities,tenants,and others,then those other creditors could force the mortgage lender to acquiesce in a plan of reorganization that is not in the lender's best interests.That process is called a cram-down.With only one creditor,the mortgage lender,there is no chance of a cram-down.(Do not confuse with a special-purpose entity, also abbreviated as SPE,which is much broader than a single-purpose entity.) Also called a single-asset entity (SAE).

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.
References in periodicals archive ?
For the purpose of issuing bonds for headquarters hotel financing, governments often create a single-purpose entity to isolate hotel operations from their other assets and revenues.
Nonetheless, it may be advisable for title to the parked property to be held in a single-purpose entity, such as a single-member limited liability company (SMLLC) established by the intermediary for the sole purpose of holding such tide.
Consider using a new single-purpose entity for each engagement.
GE Real Estate provided a $32 million, on-book fixed-rate loan to a single-purpose entity, formed by Core Investments and O'Connell Investments, for the refinancing of the Reserve at Marina Bay apartments in Quincy, MA.

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