Why Independent Director Provisions Matter More Than Ever in CRE Finance
The commercial real estate finance market continues to place increasing emphasis on bankruptcy-remoteness, SPE governance, and fiduciary structure as lenders and investors navigate refinancing risk, capital market volatility, and evolving legal scrutiny.
According to CREFC World’s Fall 2025 publication, Special Purpose Entities (“SPEs”) and independent director provisions are receiving renewed attention across structured finance markets.
These discussions align with broader themes highlighted during the 2025 CREFC Annual Conference, where market participants focused heavily on risk management, transaction discipline, and long-term structural stability throughout commercial real estate finance.
The Continued Importance of Bankruptcy-Remote SPEs
Bankruptcy-remote SPEs have remained a foundational component of commercial real estate finance since the growth of CMBS in the 1990s following the Savings & Loan crisis. Their primary purpose is to isolate bankruptcy risk of a property to protect collateral of lenders.
This structure helps protect collateral value, improve loan marketability, support securitization structures, reduce contagion risk during borrower distress, and strengthen investor confidence in structured finance transactions.
Today, bankruptcy remoteness is standard across conduit CMBS transactions, single-asset/single-borrower (SASB) loans, CRE CLO, structured bridge lending, private credit, mezzanine financing structures, and institutional CRE lending platforms.
As a result, SPE formation and governance are no longer viewed as simple organizational formalities. They are critical underwriting and risk-management considerations across modern CRE finance transactions.
Why Independent Director Provisions Became So Important
One of the core components of a bankruptcy-remote structure is the inclusion of an independent director. While terminology may vary depending on the entity structure, the role serves the same purpose: ensuring certain major decisions remain independent from affiliated ownership influence.
According to CREFC, credit rating agencies historically required SPE borrowers on loans exceeding $20MM for CMBS to include an independent party whose approval would be necessary before filing voluntary bankruptcy. This serves as a credit requirement and the lack of such structure resulted in a credit negative.
The goal was to preserve the separateness of the SPE, protect lenders and securitized investors, and ensure decisions were made in the best interest of the entity itself rather than the broader corporate group.
Over time, these provisions became embedded throughout LLC operating agreements, mortgage loan documents, securitization structures, intercreditor frameworks, and organizational governance requirements.
The importance of these protections became especially clear following the 2009 General Growth Properties (GGP) bankruptcy.
The GGP Bankruptcy Reshaped SPE Governance
During the Global Financial Crisis, General Growth Properties filed for bankruptcy alongside hundreds of property-level SPE subsidiaries. Creditors challenged the filings, arguing many of the SPEs were solvent and legally separate from the parent entity.
However, the court allowed the filings to proceed, effectively recognizing broader “corporate family” considerations.
For the structured finance market, the ruling raised concerns about whether bankruptcy-remote protections and SPE separateness could withstand stress scenarios involving large corporate groups.
According to CREFC, lenders and legal counsel responded by strengthening SPE organizational structures through narrower fiduciary duties for independent managers, enhanced separateness covenants, restrictions on removal rights for independent directors, and requirements that independent directors be sourced from nationally recognized corporate service providers.
Many of these provisions are now considered standard across institutional CRE finance transactions.
The 301 W. North Avenue Decision Reinforces SPE Protections
According to CREF’s Fall 2025 publication, the bankruptcy case In re 301 W. North Avenue, LLC represents one of the clearest judicial affirmations of modern SPE governance structures.
In this case, the borrower filed for bankruptcy without obtaining the required approval from the SPE’s independent manager. The bankruptcy court ultimately dismissed the filing.
The court confirmed several principles that remain highly relevant to today’s structured finance market.
First, the court stated that the mortgage loan documents and SPE governing agreements “speak for themselves,” reinforcing the importance of carefully drafted organizational language.
Second, the court confirmed that requiring independent manager participation and affirmative consent for bankruptcy filings is not inherently invalid or against public policy.
Most importantly, the court recognized the enforceability of organizational provisions that limited the independent manager’s fiduciary duties to the SPE entity and its creditors. The decision also acknowledged that the independent manager did not owe fiduciary duties to equity holders, parent companies, affiliates, or other third parties when properly structured under Delaware law.
For lenders and investors, the ruling provides additional support for the continued effectiveness of carefully drafted bankruptcy-remote SPE structures.
Delaware vs. Texas: A Growing Jurisdictional Discussion
According to CREFC, Texas recently adopted legislation allowing broader elimination of fiduciary duties within LLC structures, creating new discussion around jurisdiction selection for SPE formation.
However, Delaware continues to dominate the structured finance market because of its extensive case law, long-established corporate framework, and predictability in complex financial transactions.
There may be uncertainty around how Texas courts may interpret these provisions could create additional diligence considerations for lenders and investors. For institutional CRE finance transactions, predictability and enforceability remain critical factors when selecting a jurisdiction for SPE formation.
The Operational Side of SPE Compliance
The evolving legal environment surrounding SPEs also reinforces the importance of ongoing compliance and governance administration throughout the life of a transaction.
Maintaining bankruptcy-remoteness involves more than initial entity formation. Independent director requirements, separateness covenants, organizational documentation, annual maintenance obligations, and governance procedures must remain consistently maintained after closing.
As courts continue evaluating the enforceability of SPE structures and fiduciary provisions, operational discipline remains an essential component of effective risk management across CRE finance transactions.
For borrowers, lenders, and sponsors, this means ongoing attention to entity separateness, annual compliance requirements, independent director administration, organizational recordkeeping, and governance maintenance procedures.
These operational standards remain central to preserving bankruptcy-remoteness throughout the life of a CRE transaction.
Final Thoughts
The commercial real estate finance market has spent more than a decade refining SPE governance structures in response to lessons learned during the Global Financial Crisis.
Properly drafted SPE provisions, particularly those involving independent managers, separateness covenants, and fiduciary limitations, remain highly relevant to structured finance today.
As CRE markets continue evolving, bankruptcy-remoteness and enforceable governance structures will remain central to protecting lenders, investors, and securitized transactions.
