Structuring a real estate deal - company vs family
We own an anchor-tenant retailing company and are on a mix of  leased and outright owned properties (+20 stores). We keep the real estate holdings in a separate carved out LLC from the retailing company. The family owns both the real estate and the retailing company.

Our plan is to build a new store on land owned by the real estate LLC. However, we are debating who should pay for the new store? Should the retailing company pay for it? Should the real estate holding company pay for it and then adjust the retailing side rents accordingly? Is it a moot point b/c the retailing side will pay for the building no matter what, whether that be through rent or actually building it? What are the tax implications are there for either side as the largest beneficiary? (Don't worry, we will speak to an attorney regarding this). One other thing to note is that the retailing side is much more valuable than the real estate side and would be able to get lower interest rates from the bank. How would you structure this deal to be the most beneficial for the combined interests of the real estate and the retailer? And even though the retailing side has existed for 50+ years, this sort of situation is our first time doing this. Our preceding generation has been a little slow to realize the power of real estate and leverage (but have done a fantastic job in terms of retailing... Had they been a little more savvy, I wouldn't be posting here and instead would be in the FATFIRE subreddit asking what the best bidet is for yachts when you're cruising the Mediterranean or how many nannies is too many nannies....). Thanks
[{"id": "hwk6lpl", "text": "First Q, would you be financing the buildout or using cash on hand?", "replies": [{"id": "hwl78x0", "text": "If it were up to me: financing. No reason to use our cash right now and before interest rates shoot up. We should be able to secure a low rate", "replies": [{"id": "hwt4z6j", "text": "Have the entity holding the property do a build to suit and secure it against a long lease from the entity handling the retail locations. I think you want to have the entity holding the RE to be the owner of the improvements so that if you ever decide to sell the retail business, you have the assets improved and owned by the RE entity. \n\nmy $0.02", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hwk8110", "text": "Think about isolating risk. Taxes are important but not the only consideration. Sounds like the retailer is the golden goose - protect it at all costs.\n\nA simple structure would be the retailer entering into a long term build-to-suit lease agreement with the RE LLC. The RE LLC shoulders all the construction risk and liability. However, the RE LLC is able to get decent financing terms because the retailer has a strong covenant.\n\nThe isolation of risk works in reverse too. God forbid the retailer gets into trouble and collapses. At that point, all the real estate is trapped in the retailer (opco) and exposed to creditors. Whereas if the real estate is held in the RE LLC (hold co) it's protected from the failure of the retailer and still has a leasable asset.", "replies": [{"id": "hwl8fkt", "text": "I am going to bring this option to the ceo and pretend I came up with it. Thank you", "replies": [{"id": "hwo0rew", "text": "Good luck! :)", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hwketvo", "text": "Here are my off the cuff thoughts: the retailer creates a subsidiary for construction that ground leases the land from the real estate co and can use its preferable financing terms to finance the construction. Once construction is complete, the subsidiary leases the property to retailer-parent and sells the property to real estate co. Real estate co extinguishes ground lease with itself and winds up with normal retail lease with retailer.\n\nAlternatively construction subsidiary can sell the ground lease to an arm's length buyer. Any buyer like that is in a precarious position though because you are both their tenant and their landlord.\n\nThis kind of construction and then sale-leaseback is common. You can look at Jack in the Box/Different Rules for a publicly traded example.", "replies": [{"id": "hwl8dou", "text": "I am going to have to check out the jack in the box example. Thank you for your comment!", "replies": [], "depth": 2}], "depth": 1}, {"id": "hwl71rf", "text": "I am not affiliated with Pf Chang\u2019s btw", "replies": [], "depth": 1}]