According to the Bankruptcy Code, single asset real estate (SARE) means:
[R]eal property constituting a single property or project, other than residential real property with fewer than 4 residential units, which generates substantially all of the gross income of a debtor who is not a family farmer and on which no substantial business is being conducted by a debtor other than the business of operating the real property and activities incidental.
To fall within the SARE definition, a chapter 11 debtor must satisfy three conditions:
• single property or single project, other than residential real property with fewer than four residential units;
• property or single project generating substantially all revenue; and
• no business other than the operation of the real property and activities incidental thereto.
In re Vargas Realty Enters. Inc., 2009 WL 2929258, at *2 (Bankr. S.D.N.Y. July 23, 2009) is a bankruptcy case filed in a New York court that illustrates how the first test works. A debtor who operates multiple properties may oppose SARE classification by arguing that it does not operate a single property or project. In In re Vargas Realty Enters. Inc., Vargas, owned all shares in each of four debtor corporations. Each corporation owned one building consisting of four or more apartments or residential units. Vargas acquired the properties separately over a 20-year period. Each building was located on its own tax lot. The four debtor corporations each filed a Chapter 11 petition to prevent the secured creditor from foreclosing.
The creditor filed a motion for relief from the automatic stay. On request of a creditor with a claim secured by the SARE and after notice and a hearing, the court grants relief from the automatic stay to the creditor unless the debtor files a feasible plan of reorganization or begins making interest payments to the creditor within 90 days from the date of the filing of the case, or within 30 days of the court’s determination that the case is a SARE.
In In re Vargas Realty Enters. Inc., the debtors provided no evidence to oppose the creditor’s SARE claims. The debtors argued they operated as a single debtor that in turn operated four properties, not a single property. The court decided the SARE definition was not restricted to a single piece of real estate. The definition included “multiple pieces of real estate operated as a single project by a debtor.” The four properties constituted a single project because of the common management and common mortgage. Although a debtor conducts multiple projects, a court may determine that the debtor satisfies the first SARE definition.
A debtor in New York may wish to engage an attorney to analyze the debtor’s defenses to a motion for relief from automatic stay based on SARE.