On May 19, 2023, the U.S. Bankruptcy Court for the Sothern District of New York entered a memorandum opinion examining whether two contiguous commercial condominiums can be classified as “single asset real estate” under the Bankruptcy Code, specifically under 11 U.S.C. § 101(51B). The opinion concludes that they do not meet this definition.
Specifically, creditor DCC Vigilant, LLC filed a motion to classify the debtor as a “single asset real estate” debtor. DCC argued that the two units should be regarded as a “single property” because they have never been owned separately, were transferred under a single deed, and they both are collateral for a single mortgage. Furthermore, DCC suggests that these units should be seen as a “single project” since they resemble an office building or shopping mall where the rental units are part of a unified plan.
On the other hand, the debtor argued that the two units are discrete entities, each having different tenants, divergent commercial uses, separate plans for future sale and development, and unique listings as separate lots by the New York City Department of Finance.
The court explained the test for “single asset real estate” cases as defined in the Bankruptcy Reform Act of 1994. It clarified that “single asset real estate” refers to real property that comprises a single property or project, which substantially generates all the gross income of a debtor. The designation of real property as a “single property or project” is a factual matter, and the responsibility falls on the movant to prove that multiple parcels amount to a “single property or project.”
It is true that courts consider the proximity of the parcels, their common ownership, and whether they were transferred under a single deed subject to a single mortgage. However, the court ruled that the two units do not constitute a “single property” due to their differing lot numbers and unique characteristics. The court also concluded that these units do not form a “single project” since DCC has not successfully shown that the properties are united by a common plan or scheme. As a result, the court denied DCC’s motion to designate Nuovo Ciao-Di, LLC as a “single asset real estate” debtor.