Mike Rodgers and Brian Gannon Published in Commercial Real Estate Magazine
”The Lease-Own Hybrid Model Provides Fuel for Property Transactions"

Mike Rodgers and Brian Gannon's article, "The Lease-Own Hybrid Model Provides Fuel for Property Transactions," was published in the January/February 2009 issue of Commercial Real Estate Magazine. In their article, the authors discuss an ownership-leasing hybrid model that is used in property transactions. According to the authors, "As a financial tool, the ownership-leasing hybrid combines the advantages of leasing and selling commercial property. In its simplest form, a tenant company leases space in a building and, in turn, the tenant (or its principals) receives an ownership stake in the landlord entity with an opportunity to participate in the company’s annual profits and long-term appreciation. As consideration for this ownership interest, the tenant agrees to a long-term lease and pays strong market rents with few concessions."

The authors explain that corporate documentation for the ownership-leasing hybrid is slightly more difficult and requires careful attention to federal and state securities laws. If the landlord’s entity is a limited liability company, then the developer would be the landlord’s entity’s sole manager. The authors point out that the LLC operation agreement provides a preferred return on the developer’s original equity investment in the project and it may provide compensation to the developer for managing the company’s daily affairs.

The authors conclude, “The sale of stock or membership interests by the developer is considered the sale of securities and must be registered with the Securities and Exchange Commission or satisfy an applicable exemption. Most developers try to achieve safe harbor protection by satisfying Regulation D rules. Moreover, each prospective tenant (or its investing affiliate) must qualify as an accredited investor under applicable law; most commercial tenants tend to meet this investment standard.”