Mr. Irresistible Force, Meet Ms. Immovable Object

In the acquisition and financing of income-producing property, there are usually three parties at the table:  the sponsor (often a local entrepreneur who has located and will manage and lease the building), the equity investor (often an institution, such as a life company, real estate fund or REIT) and the lender.

In closing the equity and debt, the sponsor functions as a tiny fulcrum balancing a teeter totter board with an elephant on one end and a hippo on the other, neither of whom wants to stay balanced with the other.  As if the fulcrum’s job wasn’t already hard, a recent Memorandum from the Office of Chief Counsel of the IRS potentially up-ends one of the traditional risk allocation and tax benefit analyses that makes real estate investments appealing to equity investors in the first place.