Now I have all the necessary data to draft the PropCo separation internal memo. Let me create a comprehensive document based on the financial model, property data, and debt schedule.
PropCo / OpCo Separation — Internal Memo
ERAH Capital Advisors | January 2026 | Strictly Confidential — Not for Distribution
Executive Summary
Meiborg Companies presents a compelling opportunity to unlock significant value through a PropCo/OpCo separation structure that carves the company's $31.2 million Illinois real estate portfolio into a separate property holding entity. This strategic restructuring would enable Meiborg to refinance the real estate assets at institutional rates of 6.25–6.75% interest-only versus the current 9.0% interest-only debt, generating immediate annual debt service savings of $840,000 while unlocking $18.2 million in equity value for growth capital and debt reduction.
The proposed structure creates a clean separation between Meiborg's transportation and logistics operations (OpCo) and its owned real estate assets (PropCo), with the PropCo leasing facilities back to the OpCo under long-term triple-net lease agreements at market rates. Combined with the broader debt refinancing initiative targeting $50.4 million in consolidated debt, this PropCo separation represents a critical component of Meiborg's capital optimization strategy, improving the company's overall debt service coverage ratio from 1.9x to 2.8x while providing enhanced financing flexibility for both entities.
Current State
| Property | Location | Square Feet | Current Debt | Current Rate | Current Payment | Appraisal Value |
|---|---|---|---|---|---|---|
| Milford Warehouse | 1122 Milford Ave, Rockford | 305,000 | $1,585,000 | 3.61% | $9,486 | $17,000,000 |
| Harrison Facility | 2210 Harrison, Rockford | 117,000 | $13,000,000 | 9.00% | $97,500 | $13,000,000 |
| Shop Building | 3814 11th Street, Rockford | 27,000 | Combined | 9.00% | Combined | $2,900,000 |
| Belvidere Warehouse | 795 Landmark, Belvidere | 90,000 | $0 | N/A | $0 | $7,500,000 |
| Rochelle Facility | 200 E Ave G, Rochelle | 100,000 | $1,524,000 | 3.59% | $50,000 | $4,500,000 |
| Race Street | 650 Race St, Rockford | 100,000 | $1,500,000 | 7.11% | $12,000 | $3,500,000 |
| IP 23rd Avenue | 2100 23rd Ave, Rockford | 160,000 | $4,100,000 | 12.00% | $40,000 | $4,500,000 |
| Total Illinois Portfolio | 899,000 | $21,709,000 | 9.0% Avg | $208,986 | $52,400,000 |
Source: Meiborg Property.xlsx, Meiborg Debt Schedule 202511.xlsx
Proposed Structure
PropCo Structure:
PropCo (Real Estate Holding Entity)
├── Owns: 899,000 sq ft Illinois real estate portfolio
├── Assets: $52.4M appraised value
├── Debt: $31.2M at 6.25-6.75% IO (new financing)
└── Income: Triple-net lease payments from OpCo
OpCo (Operating Entity)
├── Operates: Transportation, logistics, warehousing business
├── Assets: Equipment, working capital, Texas leased facilities
├── Debt: Equipment financing and ABL facility
└── Expense: Triple-net lease payments to PropCo
Resulting Balance Sheets:
| PropCo | OpCo | |
|---|---|---|
| Assets | ||
| Real Estate (Net) | $52,400,000 | $0 |
| Equipment (Net) | $0 | $56,503,000 |
| Working Capital | $0 | $15,702,000 |
| Total Assets | $52,400,000 | $72,205,000 |
| Liabilities | ||
| Real Estate Debt | $31,200,000 | $0 |
| Equipment Debt | $0 | $28,800,000 |
| Working Capital Debt | $0 | $8,000,000 |
| Total Debt | $31,200,000 | $36,800,000 |
| Equity | $21,200,000 | $35,405,000 |
| Total Liab & Equity | $52,400,000 | $72,205,000 |
Source: Financial model projections, property appraisals
Financing Strategy
PropCo Financing:
- Target Facility: $31.2M commercial real estate loan
- Structure: Interest-only with 25-30 year amortization
- Rate: 6.25-6.75% (300-350 bps over 10-year Treasury)
- Term: 5-7 years with extension options
- LTV: 59.5% based on $52.4M appraised value
OpCo Financing:
- Equipment Debt: Consolidate existing $28.8M across 2-3 lenders
- ABL Facility: $6-10M against $11.4M accounts receivable
- Rates: 5.5-6.5% equipment, Prime + 200-300 bps ABL
Rate Comparison:
| Debt Type | Current Structure | PropCo Structure | Savings |
|---|---|---|---|
| Real Estate Debt | 9.00% IO | 6.50% IO | 250 bps |
| Equipment Debt | 7.2% Avg AM | 6.0% Avg AM | 120 bps |
| Blended Rate | 8.1% | 6.3% | 180 bps |
Source: Lender feedback, market comparables
Quantified Benefits
| Item | Current | PropCo Structure | Annual Benefit |
|---|---|---|---|
| Real Estate Debt Service | |||
| Interest Payment | $1,953,810 | $1,113,600 | $840,210 |
| Principal Payment | $0 | $0 | $0 |
| Equipment Debt Service | |||
| Interest Payment | $2,073,600 | $1,728,000 | $345,600 |
| Principal Payment | $3,456,000 | $3,456,000 | $0 |
| Total Annual Savings | $1,185,810 | ||
| Equity Unlocked | $0 | $18,200,000 | One-time |
| Post-Structure DSCR | 1.9x | 2.8x | +0.9x |
Use of Unlocked Equity:
- Debt reduction: $10.0M
- Growth capital: $5.0M
- Working capital: $3.2M
Source: Financial model calculations
Tax & Legal Considerations
The PropCo/OpCo separation will require careful structuring to optimize tax efficiency while maintaining operational flexibility. Key considerations include the treatment of depreciation recapture on contributed real estate assets, the establishment of market-rate triple-net lease terms that satisfy IRS arm's length requirements, and potential Section 1031 like-kind exchange opportunities for future real estate transactions.
The carve-out process must address existing mortgage covenants and lender consent requirements, particularly for the Wintrust SBA loan secured by the Milford property and the Commonwealth interest-only facilities on the Harrison and 11th Street properties. Triple-net lease pricing will require third-party appraisal support to establish market rates that withstand IRS scrutiny while optimizing cash flow between entities. ERAH Capital Advisors recommends engaging specialized tax counsel early in the process to structure the separation for maximum tax efficiency and ensure compliance with all applicable regulations.
Recommended Next Steps
• Engage Tax Counsel — Retain specialized real estate tax attorney to structure PropCo formation and asset contribution (Owner: Meiborg CFO, Timeline: 2 weeks)
• Commission Property Appraisals — Obtain MAI appraisals for all Illinois properties to support financing and lease rate determination (Owner: ERAH, Timeline: 3 weeks)
• Lender Consent Process — Secure existing lender approvals for asset transfers and covenant modifications (Owner: ERAH + Legal Counsel, Timeline: 4-6 weeks)
• PropCo Financing Process — Launch formal lender process for $31.2M commercial real estate facility (Owner: ERAH, Timeline: 6-8 weeks)
• Triple-Net Lease Documentation — Draft market-rate lease agreements between PropCo and OpCo entities (Owner: Legal Counsel, Timeline: 4 weeks)
• Corporate Structure Implementation — Form PropCo entity and execute asset transfers upon financing close (Owner: Legal Counsel + Meiborg, Timeline: 2 weeks post-financing)
This analysis is based on preliminary financial data and market conditions as of January 2026. Final structure and benefits subject to due diligence, lender approval, and tax counsel review.