Jerry's Place Cleveland, LLC

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF MISSISSIPPI
IN RE: JERRY’S PLACE CLEVELAND, LLC CASE NO. 25-14357-SDM
DEBTOR CHAPTER 11
MEMORANDUM OPINION AND ORDER SUSTAINING UNITED STATES
TRUSTEE’S OBJECTION TO DESIGNATION AS A SUBCHAPTER V DEBTOR
This matter came before the Court on the United States Trustee’s Objection to Designation
as a Subchapter V Debtor (the “Objection”) [Dkt. #42] filed by David W. Asbach, Acting United
States Trustee for Region 5 (the “UST”). Jerry’s Place Cleveland, LLC (the “Debtor”) filed a
response opposing the Objection (the “Response”) [Dkt. #55]. The Court conducted an evidentiary
hearing on May 15, 2026, before proceeding to confirmation of the Debtor’s proposed Subchapter
V plan.
The issue before the Court is whether the Debtor may proceed under Subchapter V of
Chapter 11 or whether the Debtor is excluded from Subchapter V because its primary activity is
the business of owning single asset real estate. Because the Debtor’s business is limited to owning
and monetizing contiguous commercial property on Highway 61 North through the Delta Ag, Inc.
(“Delta Ag”) lease, the Lamar Companies (“Lamar”) billboard arrangement, and efforts to sell the
____________________________________________________________________________
The Order of the Court is set forth below. The case docket reflects the date entered.
____________________________________________________________________________
SO ORDERED,
United States Bankruptcy Judge
Judge Selene D. Maddox
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property, the Debtor is a single asset real estate debtor within the meaning of 11 U.S.C.
§ 101(51B).1 Therefore, the UST’s Objection should be sustained.
I. JURISDICTION
The Court has jurisdiction over this matter under 28 U.S.C. §§ 1334 and 157. This matter
is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O) because it concerns the administration
of the estate and the Debtor’s eligibility to proceed under Subchapter V of Chapter 11. Venue is
proper.
II. BACKGROUND
On December 23, 2025, the Debtor filed a voluntary petition for relief under Chapter 11 of
the Bankruptcy Code. Dkt. #1. In its petition, pursuant to Federal Rule of Bankruptcy Procedure
1020(a), the Debtor stated that it is a small business debtor as defined in § 101(51D) and elected
to proceed under Subchapter V of Chapter 11. Robert Byrd was appointed as Subchapter V trustee.
The Debtor has remained in possession and control of its property as debtor-in-possession.
On March 6, 2026, the UST filed the Objection. The UST asserts that the Debtor is not
eligible to proceed under Subchapter V because the Debtor’s primary activity is the business of
owning single asset real estate. The UST alleges that the Debtor’s assets consist of contiguous
commercial lots located at 3612 Highway 61 North in Cleveland, Mississippi, with one lot
containing a commercial building and another lot consisting of a gravel parking area. The UST
further alleges that Delta Ag leases the property from the Debtor and that Lamar pays the Debtor
for a billboard located on the property.
1 All statutory references will be to Title 11 of the United States Code unless indicated
otherwise.
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The Debtor filed its Response denying that it is a single asset real estate debtor. The Debtor
contends that it owns at least two separate contiguous parcels. According to the Debtor, one parcel
contains the commercial building leased to Delta Ag, and another parcel contains the billboard
subject to a separate arrangement with Lamar. The Debtor also asserts that its income is derived
from two separate sources: the Delta Ag lease and the Lamar billboard arrangement. The Court set
the Objection for hearing before proceeding to confirmation. Subchapter V eligibility is a threshold
issue, and if the Debtor is not eligible to proceed under Subchapter V, the Court cannot confirm a
Subchapter V plan.
The commercial property at issue is located on Highway 61 North in Cleveland,
Mississippi. The deed attached to the Objection describes property in the Vance Commercial
Development, including parts of Lots 4 and 5 and Lot 6. The deed of trust attached to the Objection
likewise identifies the commercial real estate as collateral securing one indebtedness. The deed of
trust lists the property address as 3612 Highway 61, Cleveland, Mississippi 38732. The Debtor
does not dispute that the parcels are contiguous.
At the hearing, Robert Lomenick, Jr. testified regarding the Debtor’s ownership structure,
acquisition and use of the property, the lease with Delta Ag, the billboard arrangement with Lamar,
and efforts to sell the property. Mr. Lomenick testified that he is affiliated with Hill Country
Cannabis Fund, LLC, the entity that manages the Debtor. Delta Ag leases the commercial property
from the Debtor, and that lease runs until 2028. At the hearing, Mr. Lomenick also testified that
Delta Ag uses the commercial building and the adjoining lot in connection with its business, mainly
for storage.
The property also includes a billboard arrangement with Lamar. From the pleadings and
testimony, Lamar owns the billboard, pays the Debtor $2,000 per year for the sign to be located on
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the Debtor’s property, and that the contract ends in May 2026. The Debtor’s Response states that
the Debtor manages the billboard lease and intends to renew the agreement. At the hearing, Mr.
Lomenick testified that the billboard arrangement was already in place when the Debtor acquired
the property. He further testified that Lamar submitted a proposal regarding the billboard
arrangement, including a potential sale or buyout option related to the billboard for approximately
$20,000.
The Debtor’s income is generated solely by the Delta Ag lease and the Lamar billboard
arrangement. Mr. Lomenick also testified that the Debtor has marketed the property for sale for
approximately two years. The Court admitted an exhibit at the hearing: a photograph of the
property depicting the commercial building, the adjoining lot, and the billboard located on or near
the adjoining parcel.2
At the conclusion of the hearing, the parties elected not to brief the relevant legal issues
further, and the Court took the matter under advisement.
2 The photograph above was admitted as a hearing exhibit to provide visual context for the
property and its layout. The Court’s ruling is based on the full record, including the pleadings,
exhibit, testimony, and applicable law.
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III. DISCUSSION
The Debtor’s eligibility turns on the interaction between Subchapter V and the Bankruptcy
Code’s definition of “single asset real estate.” Subchapter V was enacted as part of the Small
Business Reorganization Act of 2019 to provide eligible small business debtors with a more
streamlined and less expensive Chapter 11 process. But Congress expressly excluded from
Subchapter V a person “whose primary activity is the business of owning single asset real estate.”
11 U.S.C. § 1182(1)(A).
The Bankruptcy Code defines “single asset real estate” as:
[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 thereto.
11 U.S.C. § 101(51B). The Fifth Circuit has described the SARE definition as having three
requirements: “(1) the debtor must have real property constituting a single property or project
(other than residential real property with fewer than 4 residential units), (2) which generates
substantially all of the gross income of the debtor, and (3) on which no substantial business is
conducted other than the business of operating the real property and activities incidental thereto.”
Ad Hoc Grp. of Timber Noteholders v. Pac. Lumber Co. (In re Scotia Pacific Co., LLC), 508 F.3d
214, 220 (5th Cir. 2007). All three requirements must be satisfied before a debtor is a SARE debtor.
Id.3 The Court addresses the burden of proof before turning to each requirement.
3 Courts interpreting § 101(51B) generally recognize that the statutory definition of “single
asset real estate” contains these same three requirements, all of which must be satisfied before a
debtor qualifies as a SARE debtor. See e.g., In re Merulo Maddux Properties, Inc., 667 F.3d 1072,
1076 (9th Cir. 2012) (recognizing that § 101(51B) defines SARE through three statutory elements);
In re Alvion Properties, Inc., 538 B.R. 527, 532 (Bankr. S.D. Ill. 2015) (applying the three-part
framework articulated in Scotia Pacific Co., 508 F.3d at 220); In re Evergreen Site Holdings, inc.,
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A. The Debtor bears the burden of proving Subchapter V eligibility.
As a threshold matter, the Court must address the burden of proof. During closing
argument, the Debtor emphasized that the burden allocation matters and argued that the UST, as
the objecting party, possibly bore the burden of proving that the Debtor is a single asset real estate
debtor. Because the burden issue affects how the Court evaluates the evidence on Subchapter V
eligibility, the Court addresses that issue first.
The Bankruptcy Code and Federal Rules of Bankruptcy Procedure do not expressly state
which party bears the burden when a debtor’s Subchapter V designation is challenged on SARE
grounds. The answer depends in part on the procedural posture. SARE status most often arises in
stay-relief disputes under § 362(d)(3). In that posture, many courts place the burden on the movant
seeking stay relief or seeking a SARE determination. See, e.g., In re Alvion Props., Inc., 538 B.R.
527, 532 (Bankr. S.D. Ill. 2015). That rule makes sense when SARE status is part of a creditor’s
request for relief from the automatic stay.
But this matter is not merely a stay-relief dispute. The UST objects to the Debtor’s election
to proceed under Subchapter V. That distinction matters because § 1182(1)(A) makes the SARE
exclusion part of the eligibility definition itself. The Debtor elected Subchapter V, seeks the
benefits of Subchapter V, and is the party with access to information concerning its assets, income,
business operations, and property use.
Several courts addressing this precise Subchapter V issue have placed the burden on the
debtor. In In re Evergreen Site Holdings, Inc., a creditor objected to the debtor’s Subchapter V
election on the ground that the debtor’s only activity was allegedly owning SARE. 652 B.R. 307,
652 B.R. 307, 317 (Bankr. S.D. Ohio 2023) (same); In re Amerinvest, LLC, 670 B.R. 40, 46 (Bankr.
E.D. Va. 2025) (same).
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309 (Bankr. S.D. Ohio 2023). The court recognized that the Bankruptcy Code and Rules are silent
on the burden but noted longstanding case law placing the burden on a debtor to establish eligibility
for relief under a particular chapter. Id. at 316. The court held that the debtor bore the burden of
proving by a preponderance of the evidence that it was eligible to proceed under Subchapter V. Id.
The Bankruptcy Court for the Southern District of Ohio followed the same approach in In
re Gate, No. 24-10180, 2024 WL 5711045 (Bankr. S.D. Ohio May 8, 2024). There, a creditor and
the UST objected to the debtor’s Subchapter V election, asserting that the debtor was a SARE
debtor. Id. at *1. The court acknowledged that courts often place the burden on the movant in stay-
relief SARE disputes but distinguished that posture from a Subchapter V eligibility challenge. Id.
at *4. The court found the majority view more persuasive and held that when SARE status is raised
as part of an objection to Subchapter V eligibility, “it is the debtor that carries the burden of
establishing its eligibility, including that it is a non-SARE entity, by a preponderance of the
evidence.” Id.
Although Evergreen and Gate are not controlling authority in the Fifth Circuit, the Court
is persuaded by their reasoning and agrees with their analysis. Because this matter arises as an
objection to the Debtor’s Subchapter V designation, the Debtor bears the burden of proving its
eligibility to proceed under Subchapter V. That burden includes proving that the Debtor is not
excluded as a person whose primary activity is the business of owning single asset real estate.
B. The Debtor owns real property constituting a single property or project.
The first requirement is that the Debtor own “real property constituting a single property
or project.” 11 U.S.C. § 101(51B). The parties do not contend that the property is residential real
property with fewer than four residential units. The dispute is whether the Debtor’s contiguous
parcels constitute a single property or project. Here, the Court’s analysis focuses primarily on
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whether the Debtor’s contiguous parcels function as a single integrated commercial project within
the meaning of § 101(51B).
1. The single-project inquiry focuses on common use, plan, or purpose.
When multiple parcels are involved, the fact that the debtor owns more than one tax parcel
does not end the inquiry. Congress used the phrase “single property or project.” Courts, therefore,
must give meaning to both “property” and “project.” Multiple parcels may constitute a single
project if they are linked by a common plan, scheme, use, or purpose.
The leading multiple-parcel cases emphasize that common ownership alone is not enough.
In In re McGreals, 201 B.R. 736 (Bankr. E.D. Pa. 1996), the debtor owned two partially adjacent
parcels. One parcel contained an improved refrigerated manufacturing plant that was rented. The
other parcel was raw land. Id. at 738. The debtor sought a determination that the properties were
not SARE. Id. at 737. The court held that the parcels were not a single project because there was
no common link in usage between them and the debtor had no plan to combine them for a unitary
purpose. Id. at 742–43. The court explained that “the mere fact of common ownership, or even a
common border, will not suffice” to make separate properties a single project. Id.
The Central District of California applied a similar framework in In re Hassen Imports
Partnership, 466 B.R. 492 (Bankr. C.D. Cal. 2012). The debtor owned multiple noncontiguous
parcels in different cities, acquired over time, and leased several parcels to related automobile
dealership entities. Id. at 496–500. The City argued that the parcels were a single project because
they supported an overall dealership enterprise. Id. at 495–96. The court rejected that argument,
holding that the City failed to prove that the properties were used pursuant to a common plan or
scheme. Id. at 508–10. In doing so, the court identified several factors relevant to the single-project
inquiry: the use of the properties, the circumstances of acquisition, the location and proximity of
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the properties, and any plans for future development, sale, or abandonment. Id. at 507. The court
also emphasized that use is the “sine qua non” of the single-project determination. Id. at 508.
Evergreen applied those principles in the Subchapter V eligibility context. 652 B.R. at 309.
The debtor in Evergreen owned two adjoining parcels in Logan, Ohio. Id. at 310. One parcel
contained a single-family home, a pole barn, a small mobile home park, and remnants of a former
zipline/adventure park operation. Id. at 312. The other parcel was largely vacant except for
remnants of prior recreational uses. Id. at 310–13. The creditor argued that the parcels constituted
a single project. Id. at 312-13. The court disagreed. It found that the parcels were not being used
together in a common scheme because the mobile home park was located on one parcel, the other
parcel was vacant and unused, and no common present use governed both parcels. Id. at 318–20.
Because the debtor carried its burden to show that the parcels did not comprise a single project,
the debtor was not excluded from Subchapter V on SARE grounds. Id. at 320–21.
The Southern District of New York reached a similar debtor-favorable result in In re Nuovo
Ciao-Di, LLC, 650 B.R. 785 (Bankr. S.D.N.Y. 2023). There, the debtor owned two contiguous
commercial condominium units in Greenwich Village. Id. at 786–87. Although the units shared
common ownership and were conveyed under a single deed and mortgage, the court held that they
did not constitute a single project. Id. at 790. The units had separate lot numbers, could be valued
and sold independently, had unique legal characteristics, and were subject to different potential
uses and sale strategies. Id. at 789–90. The court concluded that there was no evidence that the
debtor planned to combine the properties or use them for a single purpose. Id.
These cases show that multiple parcels do not automatically constitute a single project. But
they also show that the inquiry is practical, not formalistic. Separate parcel numbers, separate legal
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descriptions, or the possibility of separate sale do not defeat SARE status if the debtor uses the
property in a common plan or for a common purpose.
2. When the debtor is a landlord, the focus is the debtor’s use, not the tenant’s
business.
In cases involving leased property, courts distinguish between the debtor’s use of the
property and the tenant’s use of the property. The statute asks whether the debtor’s real property
constitutes a single property or project and whether substantial business is being conducted “by a
debtor.” 11 U.S.C. § 101(51B). The business activities of a tenant or licensee do not control the
debtor’s SARE status. In re JJMM International Corp., 467 B.R. 275, 278 (Bankr. E.D.N.Y. 2012);
In re Gate, No. 24-10180, 2024 WL 5711045, at *6 (Bankr. S.D. Ohio May 8, 2024).
In JJMM International Corp., the debtor owned three contiguous parcels in Huntington
Station, New York. 467 B.R. at 276. The parcels were leased to two non-debtor entities controlled
by the debtor’s principal. Id. One tenant operated an Asian restaurant and takeout stand, and the
other operated an academic preparatory school. Id. The debtor argued that the case was not SARE
because of the different businesses conducted on the property by its tenants and the principal’s
common ownership of the debtor and tenant entities. Id. at 277–78. The court rejected that
argument. It held that the focus is not on the business activities of the tenants, but on whether the
debtor treats the property as a single project or property by virtue of a common plan or purpose.
Id. at 278. Because the debtor’s common plan was to hold title to the property and lease it to the
tenant entities, the court found the parcels constituted a single project. Id.
The same reasoning guided the court in Gate. The debtor in Gate owned the Village Gate
Shopping Center on two adjoining parcels. 2024 WL 5711045, at *1-2. The property included a
main shopping center building, a recording studio, a former service station used as an automotive
repair garage, and a former bowling alley being renovated for possible use as an event center. Id.
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The debtor argued that the separate uses, separate county use codes, ability to sell certain buildings
separately, and potential future event-center arrangement showed that the property was not SARE.
Id. at *5–8. The court disagreed. Relying on JJMM, the court held that the relevant question was
not the variety of tenant uses, but whether the debtor treated the property as a single project by
virtue of a common plan or purpose. Id. at *6. Because the debtor purchased the parcels together
to lease commercial buildings to tenants, the court found the two parcels were part of a common
plan and constituted a single project. Id.
In re Amerinvest, LLC, 670 B.R. 40 (Bankr. E.D. Va. 2025), is also instructive. There, the
debtor owned three adjacent parcels in Alexandria, Virginia. Id. at 43. The properties included
multiple rental spaces, a restaurant, parking, and other commercial uses. Id. The debtor argued that
the parcels were separate and should not be treated as a single project. Id. at 45. The court held
otherwise. It emphasized that, when property is leased, the focus is on the debtor’s common plan
or purpose, not the tenant’s business activities. Id. at 47. The court found the parcels were all used
in the debtor’s common plan to act as a commercial landlord, were generally treated as one
economic unit, and were adjacent to one another. Id. at 47-48. The debtor was therefore a SARE
debtor and could not proceed under Subchapter V. Id. at 48.
Mississippi authority is consistent with that approach. In In re Livingston Township Fund
One, LLC, the debtor owned a commercial planned development at the junction of Highway 463
and Highway 22 in Flora, Mississippi. No. 23-02573-JAW, slip op. at 2 (Bankr. S.D. Miss. Jan. 2,
2024). The debtor purchased twenty-five acres by a single deed and built roads, utilities,
streetlights, and commercial buildings on the property. Id. The debtor leased commercial space to
various tenants, including restaurants, retail stores, a bar, and other businesses. Id. at 3. The debtor
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argued that its property should not be treated as SARE, in part because of the nature and variety
of the development. Id. at 8.
The court found that the development was a single project and that the debtor’s revenues
consisted solely of rental income. Id. at 10-12. The court further held that the debtor was a SARE
debtor and therefore could not reorganize under Subchapter V. Id. at 12. Although Livingston is an
unreported decision and therefore not binding on this Court, it is especially persuasive because it
involved a Mississippi commercial development, multiple tenants, Subchapter V eligibility, and
the same statutory exclusion at issue here.
3. The Debtor’s contiguous commercial parcels constitute one project.
Applying those authorities, the Debtor’s property constitutes a single commercial real
estate project. The parcels are contiguous. They are located at the same commercial site on
Highway 61 North in Cleveland, Mississippi. They were acquired together by deed and
encumbered together by a deed of trust. Delta Ag uses both the commercial building and the
adjoining lot in connection with its business. The billboard is located on the adjoining parcel. The
Debtor has marketed the property for sale for approximately two years.
The Debtor emphasizes that the property may have separate tax parcel numbers and
separate income arrangements. But McGreals, Hassen, Evergreen, and Nuovo Ciao-Di do not
stand for the proposition that separate parcel numbers defeat SARE status. Those decisions
recognize that courts must look for a common plan, use, or purpose. Here, the common purpose is
the Debtor’s ownership and monetization of the commercial site through leases, site agreements,
and sale efforts.
The Debtor’s reliance on the billboard parcel does not defeat the first requirement. The
billboard is located on the Debtor’s commercial property and produces income because of that
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location. The fact that Lamar uses the billboard for advertising purposes does not transform the
billboard area into a separate project for SARE purposes. As JJMM, Gate, and Amerinvest explain,
the Court focuses on the Debtor’s use of the property, not the business of the tenant or licensee.
The Debtor’s use is to own and lease or otherwise monetize the commercial real property. The first
requirement is therefore satisfied.
C. The Debtor’s real property generates substantially all the Debtor’s gross income.
The second requirement is that the real property generate substantially all the Debtor’s
gross income. 11 U.S.C. § 101(51B). This element focuses on the source and character of the
debtor’s revenue. Courts ask whether the debtor’s income is generated by the property itself, such
as through rent or site-use payments, or whether income is generated by labor, management
services, goods, or an operating business. See In re Gates, 2024 WL 5711045, at *6 (citing JJMM,
Int’l Corp., 467 B.R. at 277; In re Club Golf Partners, L.P., No. 07-40096-BTR-11, 2007 WL
1176010, at *5 (E.D. Tex. Feb. 15, 2007)).
The Fifth Circuit addressed this distinction in Scotia Pacific. There, the debtor owned
approximately 200,000 acres of timberland and held contractual rights to harvest timber on
additional land. Scotia Pacific, 508 F.3d at 216–17. The noteholders argued that the debtor was a
SARE debtor because the debtor’s income came from timberland. Id. at 218. The Fifth Circuit
rejected that argument, focusing on the nature of the debtor’s operations. Id. at 220-21. The debtor
employed more than sixty employees, including scientists within its forestry program, performed
timberland analysis and inventory, developed and implemented timber harvesting plans, ensured
regulatory compliance, planned and maintained roads, and sold timber. Id. at 218, 224–25. The
court held that the debtor’s timberland was “more than a passive investment” and that the debtor
conducted substantial business beyond merely operating real property. Id. at 224–25.
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Gate applied the same active-versus-passive distinction in the Subchapter V context. There,
the debtor’s only historical income had been rental income from shopping center tenants. Gate,
2024 WL 5711045, at *7. The debtor argued that a recent joint venture agreement with a tenant to
operate a future event center would produce profit-sharing income rather than rent. Id. The court
found that the joint venture agreement had not been admitted, the renovations were incomplete,
and the debtor provided no timeline for completion or operation. Id. The court concluded that the
potential for a different form of income in the future was too speculative to affect the analysis and
held that substantially all of the debtor’s income was generated through rental income. Id.
Here, the Debtor’s income comes from two sources: the Delta Ag lease and the Lamar
billboard arrangement. Both are generated by the Debtor’s real property. The Delta Ag income is
rent for the use of the commercial property while the Lamar income is compensation paid because
the billboard is located on the Debtor’s property. The Debtor has not identified income from the
sale of goods, services, inventory, management services, advertising services, or any business
operation independent of the real property.
The Debtor argues that Delta Ag and Lamar are separate income sources. But the statute
does not ask whether the debtor receives one check or multiple checks. A shopping center may
receive rent from many tenants and still receive substantially all its income from real property. An
office building, apartment complex, or commercial development may have multiple leases and still
be SARE. The question is whether the income is property-derived or business-operation-derived.
The possible Lamar sale or buyout proposal does not change the second requirement. Mr.
Lomenick testified that Lamar submitted a proposal related to renewal of the billboard arrangement
and that the proposal included a possible sale or buyout option for approximately $20,000. That
proposal may represent value to the estate. But the value arises from the Debtor’s property-related
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rights connected to the billboard site. It is not income from a separate operating business. Even if
the Debtor accepts the proposal, the resulting payment would be generated by the Debtor’s
ownership and monetization of the property or rights incidental to the property. The second
requirement is thus satisfied.
D. The Debtor conducts no substantial business other than operating the real property and
activities incidental thereto.
The third requirement is that no substantial business be conducted by the debtor other than
the business of operating the real property and activities incidental thereto. 11 U.S.C. § 101(51B).
This requirement is the most disputed in this case because of the Lamar billboard arrangement and
the potential $20,000 proposal.
1. Courts distinguish passive real estate activity from an operating business.
The relevant case law draws a practical line between passive real estate activity and an
operating business. On one side are debtors whose activities consist of owning, leasing,
maintaining, repairing, improving, marketing, selling, or otherwise monetizing real property.
Those activities are intrinsic or incidental to operating real property. On the other side are debtors
using real property as the platform for a separate operating business that generates income through
labor, services, goods, or active enterprise.
The active-business cases illustrate what is required to move a debtor outside the SARE
definition. In Scotia Pacific, the Fifth Circuit held that the debtor was not SARE because it was
not simply holding timberland for passive income. 508 F.3d at 224-25. The debtor had employees,
used contractors, managed timber harvest plans, performed environmental and regulatory work,
maintained roads, and sold timber. Scotia Pacific, 508 F.3d at 217, 224–25. The court concluded
that the debtor’s income-producing activity extended beyond the sale or lease of the underlying
land. Id. at 224–25.
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In In re Kkemko, Inc., 181 B.R. 47 (Bankr. S.D. Ohio 1995), the debtor operated a marina.
The mortgagee argued that the marina was SARE. Id. at 48–49. The court disagreed because the
marina was a business, not merely real estate held for income. Id. at 50–51. The debtor did more
than rent moorings. It stored, repaired, and winterized boats, provided showers and a pool, sold
gas, and provided concessions. Id. at 51. Those services constituted substantial business activity
beyond operating the real property. Id.
Similarly, in In re Club Golf Partners, L.P., 2007 WL 1176010 (E.D. Tex. Feb. 15, 2007),
the debtor owned and operated a golf club. The property included an eighteen-hole golf course,
driving range, tennis courts, clubhouse, restaurant, and bar. Id. at *1. The debtor sold memberships,
charged green fees, rented golf carts, charged for use of the driving range and tennis courts, sold
merchandise, sold food and beverages, hosted special events, and conducted golf tournaments and
lessons. Id. The court found that the debtor’s revenue was generated by active business operations
and workers’ labor, not merely by passive ownership or leasing of real property. Id. at *5–6.
A more recent example is In re Chen Foundation, Inc., 661 B.R. 34 (Bankr. S.D.N.Y. 2024).
In that case, the debtor owned a multi-story building that included commercial rental space, a
cultural center, and an art gallery. Id. at 36–37. The secured lenders sought a SARE determination.
Id. at 36. The court denied the motion, finding that the debtor’s art gallery and cultural center
activities were not intrinsic to merely owning or developing the real estate. Id. at 38–39. The debtor
and its affiliates regularly held pop-up events and special showings of artwork at the property, and
the record did not show that the gallery and cultural activities were passive or merely incidental to
real estate ownership. Id. at 39.
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2. Activities intrinsic to owning, leasing, improving, marketing, or selling real
property are incidental.
By contrast, courts routinely hold that activities intrinsic to owning, leasing, improving,
marketing, or selling real property do not constitute substantial business separate from the real
property. In In re Kara Homes, Inc., 363 B.R. 399 (Bankr. D.N.J. 2007), multiple affiliated debtors
owned separate real estate development projects for single-family homes and condominiums. Id.
at 400–01. The debtors argued that they were not SARE because they were involved in land
acquisition, community planning, home marketing, and property maintenance. Id. at 405–06. The
court rejected that argument, holding that those activities were intrinsic to owning and developing
real estate and were incidental to the operation of the subject tracts. Id. at 406. The court explained
that a SARE case is one in which the debtor performs functions intrinsic to owning and developing
real estate, not one in which the debtor generates income from activities unrelated to real estate.
Id.
Gate provides a particularly useful comparison. The debtor there argued that renovations
and a future event-center profit-sharing arrangement took the case outside the SARE definition.
Gate, 2024 WL 5711045, at *7–8. The court held that roof repairs, renovations, and making
unrentable space rentable were incidental to owning and leasing property. Id. at *8. The court also
held that the future event-center arrangement was too vague and speculative to constitute
substantial business activity. Id. The debtor had no employees generating income for the business,
and its main business activity remained collecting rent from tenants. Id. The same distinction
applies here. The Debtor leases commercial property to Delta Ag. It receives compensation from
Lamar because a billboard is located on the property. It manages or considers renewal of the Lamar
arrangement. It has marketed the property for sale. These activities relate to the ownership, leasing,
management, and monetization of the Debtor’s real property.
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3. The Lamar billboard arrangement is a property-related right, not a separate
advertising business.
The Lamar billboard arrangement deserves separate discussion. The Debtor argues that the
billboard arrangement and the possible $20,000 proposal show activity beyond passive real estate
ownership. The Court disagrees.
The relevant distinction is between Lamar’s business and the Debtor’s business. Lamar is
the outdoor advertising company. The Debtor is the property owner. Lamar uses the location for
advertising purposes and pays the Debtor because the billboard is located on the Debtor’s property.
The record does not show that the Debtor sells advertising space, solicits advertisers, services
advertising customers, maintains advertising accounts, employs workers in an advertising
operation, or operates a billboard advertising business. The record shows that the Debtor receives
or may receive compensation for a property-related right.
The possible $20,000 proposal does not alter that conclusion. A contract right associated
with real property may have value to the estate. But value alone is not the statutory test. The
statutory test is whether substantial business is conducted by the Debtor other than operating the
real property and activities incidental thereto. Managing, renewing, assigning, selling, or
monetizing a billboard lease, license, easement, site agreement, or related contract right is
incidental to owning and operating the real property on which the billboard is located. It does not
transform the Debtor into an advertising company.
This conclusion is consistent with Kara Homes and Gate. In Kara Homes, marketing and
selling homes did not remove the debtor from SARE because those activities were intrinsic to the
real estate business. Kara Homes, 363 B.R. at 405–06. In Gate, a possible future profit-sharing
arrangement tied to use of the property did not remove the debtor from SARE because the debtor’s
actual business remained owning and leasing the property. Gate, 2024 WL 5711045, at *7–8. Here,
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the Lamar proposal may generate value, but it remains tied to the Debtor’s ownership and use of
the site.
4. Delta Ag’s business activity is not the Debtor’s business activity.
Delta Ag’s business activity also does not change the analysis. Delta Ag may sell, store,
repair, or maintain equipment on the property. But Delta Ag is not the Debtor. The SARE statute
asks whether “substantial business is being conducted by a debtor” other than operating the real
property and incidental activities. 11 U.S.C. § 101(51B).
As JJMM, Gate, and Amerinvest explain, the business activities of tenants do not control
the SARE inquiry. The focus remains on the Debtor’s activity. The Debtor’s activity is owning,
leasing, managing, marketing, and monetizing rights associated with the real property. That is not
substantial business activity separate from operating the real property. Accordingly, the third
requirement is satisfied.
E. The Debtor is excluded from Subchapter V.
All three requirements of § 101(51B) are satisfied. The Debtor owns real property
constituting a single commercial real estate project. The property generates substantially all of the
Debtor’s gross income. The Debtor conducts no substantial business other than operating that real
property and activities incidental thereto.
Because the Debtor’s primary activity is the business of owning single asset real estate,
§ 1182(1)(A) excludes the Debtor from Subchapter V. The Debtor’s Subchapter V designation is
therefore improper. This ruling, however, does not dismiss the case. It determines only that the
Debtor may not proceed under Subchapter V. The case may proceed, if at all, as a non-Subchapter
V Chapter 11 case unless otherwise ordered by the Court.
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IV. CONCLUSION
The Debtor owns and monetizes a single commercial real estate project on Highway 61
North in Cleveland, Mississippi. Its income is generated by the Delta Ag lease and the Lamar
billboard arrangement. The record fails to show that the Debtor operates Delta Ag’s business,
Lamar’s advertising business, or any other business separate from owning, leasing, managing,
marketing, and monetizing rights associated with the property. The Lamar billboard arrangement,
including any potential sale or buyout option, may be an asset of value to the estate. But it remains
a property-related right arising from the Debtor’s ownership and operation of the real property. It
does not constitute substantial business activity separate from the operation of the real property.
Accordingly, it is ORDERED, ADJUDGED, AND DECREED that the United States
Trustee’s Objection to Designation as a Subchapter V Debtor [Dkt. #42] is SUSTAINED.
It is further ORDERED that Jerry’s Place Cleveland, LLC is a single asset real estate
debtor within the meaning of 11 U.S.C. § 101(51B).
It is further ORDERED that Jerry’s Place Cleveland, LLC is not eligible to proceed under
Subchapter V of Chapter 11.
It is further ORDERED that, pursuant to Federal Rule of Bankruptcy Procedure 1020(a),
the Debtor’s statement that it is a small business debtor eligible to proceed under Subchapter V of
Chapter 11 is incorrect; the Debtor’s Subchapter V designation is stricken; and this case shall
proceed, if at all, as a non-Subchapter V Chapter 11 case unless otherwise ordered by the Court.
##END OF ORDER##
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