11/22/2016 1 Real Estate Joint Ventures: Crafting an Enduring Partnership Nicole Mesard, Debevoise & Plimpton LLP Jay Neveloff, Kramer Levin Naftalis & Frankel LLP December 12, 2016 Formation and Structure Type of entity Typically LLCs or LPs Delaware LLC is preferred type of entity » Familiarity » Allows modification or elimination of fiduciary duties of manager Property owner is typically a single purpose entity (SPE) required by lender so that it is bankruptcy remote (also serves as an additional liability shield/separation) Property Owner SPE (typically an LLC) will be owned (directly or indirectly) by JV Promote: Negotiated deal-by-deal Separate management, construction and/or development agreement Liability Limited Partnerships (LPs) limited liability for limited partners, only GP is exposed Limited Liability Companies (LLCs) all members have limited liability 2
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11/22/2016
1
Real Estate Joint Ventures: Crafting an Enduring Partnership
Nicole Mesard, Debevoise & Plimpton LLP
Jay Neveloff, Kramer Levin Naftalis & Frankel LLP
December 12, 2016
Formation and Structure
Type of entity Typically LLCs or LPs
Delaware LLC is preferred type of entity
» Familiarity
» Allows modification or elimination of fiduciary duties of manager
Property owner is typically a single purpose entity (SPE) required by lender so that it is bankruptcy remote (also serves as an additional liability shield/separation)
Property Owner SPE (typically an LLC) will be owned (directly or indirectly) by JV
Promote: Negotiated deal-by-deal
Separate management, construction and/or development agreement
Liability
Limited Partnerships (LPs) limited liability for limited partners, only GP is exposed
Limited Liability Companies (LLCs) all members have limited liability
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Consequences of Manager
Removal considerations
Project completion issues if Developer/Managing Member is no longer directing construction
Finding a replacement manager (terms including promote)
Lender concerns
»
»that matches the JV removal rights
» Mstep into the shoes of the removed manager partner
Completion Guaranty issues/replacement?
» When removed, Managing Member wants as a condition to such removal their release from all guaranties
» Investors usually offer a replacement guarantor or a back-stop indemnity if Managing Member cannot be released
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Exclusivity and Non-Compete Provisions
Exclusivity/Non-Competes
Investor Member will want Developer/Managing Member to agree to commit to the property/project and not develop competing projects, poach tenants, spread itself too thin
Typically structured with an agreed upon radius (distance will depend on geographic location) and project type
Sometimes Developer/Managing Member agrees to provide Investor Member with right of first offer/right of first refusal for certain other development transactions
and a sophisticated investor (1) rarely, if ever, involve rights of first refusal;and (2) typically characterize the sponsor as an administrative member ratherthan a managing member because the investor wants a significant level ofcontrol that may be inconsistent with the notion of someone else managingthe venture (other than day-to-day activities).
JV Mock Negotiation Note:
In our experience, JV transactions between a sophisticated sponsor