Asset vehicle isolation

Each Direct-Hold Solution — Canada and the United States as limited partnerships, Spain as a SOCIMI, and Mexico as a FIBRA — is its own separate legal entity holding its own asset. In Canada and the United States, that separation is a structural consequence of limited partnership personhood: each LP is a distinct legal entity with its own creditors, its own equity register, and its own balance sheet. An obligation incurred at one vehicle does not become an obligation of any other vehicle, regardless of common beneficial ownership at a higher level in the corporate structure. This isolation is the primary mechanism by which the direct-hold framework protects unit holders from cross-vehicle contagion. The rest of this article describes the mechanics as they apply to the limited-partnership-form vehicles; the Spain SOCIMI and Mexico FIBRA achieve the same asset-level separation through their own jurisdictions' corporate and trust law, not through limited partnership form.

Key takeaways

• Each limited-partnership-form direct-hold vehicle holds its asset in a separate legal entity; the creditors of that entity — mortgage lenders, trade creditors, counterparties — have no recourse to the assets of any other direct-hold vehicle in the holding structure.
• The general partner's fiduciary obligations run separately to the limited partners of each LP; no management decision made at one LP vehicle can bind or obligate a separate LP.
• For lenders providing commercial mortgage financing to a direct-hold LP, the loan is secured against the specific property in that LP, and the lender's recourse on default is limited to that property and any other collateral specifically pledged — not to the broader portfolio.

Legal separation

A limited partnership in Canada is a legal entity distinct from its partners. The LP can own property, incur debt, enter contracts, and be a party to litigation in its own name. This legal personhood means the assets of the LP belong to the LP, not to its partners. Conversely, the creditors of the LP have recourse to the LP's assets — not to the personal assets of the limited partners (whose liability is capped at their invested capital), and not to the assets of other vehicles that share the same general partner or beneficial owner.

The direct-hold structure exploits this separation deliberately. By holding each asset in a separate legal entity, the default of any single asset — a lender calling a loan, a judgment creditor obtaining a charge — is contained within the entity holding that asset. The remaining assets in the portfolio are unaffected because they are held in separate legal entities.

Mortgage financing

Commercial mortgages on direct-hold assets are secured against the specific property held in the relevant LP. The mortgage lender has a first charge on the property and the LP's other assets; it does not have recourse to properties held in other vehicles, to equity held at the parent company level, or to cash held in the portfolios of other investors.

Income tax isolation

Because each LP is a separate entity for Canadian income tax purposes, the income and losses of each partnership are computed separately. A loss in one LP cannot be used to offset income in a different LP at the entity level; such losses flow through to the partners, and the tax treatment available to a given partner depends on that partner's own circumstances and is a matter for qualified tax counsel.

This separation prevents a cross-subsidisation of tax positions between assets: each LP's tax position is determined by the operating results of its own asset.

Unit register isolation

The unit register — the authoritative record of who holds equity in each direct-hold vehicle — is maintained separately for each vehicle. An investor's ownership in one vehicle does not appear on the register of another, even if the investor holds units in both. This register isolation means that an encumbrance against one investor's holding in one vehicle cannot affect their holding in another through the equity record.

Parent company oversight

The parent holding company — as the ultimate beneficial owner of each vehicle's governing entity — can receive consolidated information about all asset vehicles through normal holding company governance. The parent does not, however, hold the individual assets on its own balance sheet. The financial statements of the parent and the financial statements of each direct-hold vehicle are separate documents with separate audits.

See also

• Limited partnership structure — the LP legal form that implements the isolation
• Distribution declaration mechanics — how the per-asset isolation is preserved in the distribution declaration process
• Titleco and the subsidiary silo model — the property-level Titleco layer beneath this vehicle-level isolation