Commercial real estate

Tacoma (WA) Viewed 57 times. Posted 6 months ago in Real Estate. Flag this as objectionable
I own (my LLC owns) an Office building. I am trying to get tenants at the highest price.
My plan is to sign them on a 5 year lease, after three years if they have paid all their rent (on time), I would give them Membership in the LLC equivilent to the % of space the leased in the building. I am going to set aside 75% ownership in the LLC. This 75% would equal 100% I would give away to the tenants that qualified.

This way I would not need to condominimize the building for seperate offices, each tenant would have a % ownership in the LLC that owns the building.

Can I do this? Is this idea vialble? Can you help? - Is this your question? Add additional information

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Answers (1)

Douglas Edward Cornelius

Douglas Edward Cornelius

Contributor Level 3
Posted 6 months ago. Flag this as objectionable
This is viable and has been done. There were several done for medical office buildings.

The big issue is economics. I would assume that you are trying to get above-market rent in exchange for giving the tenant an ownership interest in the property. Essentially, trading the current coupon for future appreciation. This was a more attractive option for tenants two years ago than it is now in the current real estate climate.

Some things to think about:

Management - What control over the day-to-day operations property will you give to the tenant/member

Sale - What happens on the sale of the property? Who decides when to sell?

Exit - What happens when a tenant's lease ends and they do not renew. Do they lose their LLC interest?

Securities - The LLC interests could be considered securities and would require registration or the use of an exemption

Tax - Treatment of the transfer of LLC interest. Sale? Tenant's basis in the interest? Built-in gain?

Debt - Lenders will have some concerns over the changing ownership of the property. The transfer may be prohibited by your current loan.

Can you do this? Yes
Should you? That depends on the economics.
If you proceed, you will need legal help. Seek a good lawyer for legal advice.