Uninsured Risk or Conventional Wisdom

OAKLAND, CA—The strategy of holding title to investment real estate in single purpose entities as a liability shield often passes for conventional wisdom. Yet many savvy real estate entrepreneurs hold and borrow against real estate without a layer of corporate “insulation.” What do they know that you don’t?  This is a “big dollars” issue that has been hiding in plain sight for years.

Suppose you plan to purchase an office building. The conventional approach is to create a “single asset” entity—often an LLC—to hold title. This arrangement will indeed provide you with insulation against liability claims. When sued on various tort claims, you will point out that the entity owns the building and you do not. In less stressful times, when you are not facing a tort claim, you will likely think and speak of yourself as the true owner of the building. And, in an economic if not a legal sense, you are.