We are working on JV
deal with a experienced park operator. We are putting all the required money
for purchasing including closing costs, due-diligence etc. We are offering 50%
equity for the park operator and the only thing they bring to the table is expertise
to operate and manage the park.
Please see my questions/concerns below
1. If the park performs badly (Based on NOI)
after we purchase say like after 6 mon- 1yr time Is it fair to take back the 50% equity
offered to the experienced operator? If yes should be put that in partnership
agreement?2. What should be the exit
strategy in case we want to get out of the park ownership?
Thanks in Advance,
MuviInvestors
We structure our deals whereby our co-owners receive an 8% preferred rate of return, plus 50% of all additional profits. There is no way for our LPs to ‘take back’ any equity, but they actually own 100% of the RE. We ‘only’ have a profits interest, and we only get paid after they get paid first (e.g. we do not charge a management fee). Given that we only get paid off the bottom line, we are very, very motivated to make our deals go right.There are no guarantees in life, but having a partner that only gets paid after you get paid is very close to a ‘guarantee’ that they will make the deal work.As regards your agreement, yes, you should put as much into that as you can think of. A ‘screw up clause’ allowing you to take back some ownership would go in there.Finally, you should definitely have an exit plan, and discuss it with your partner up front. Probably the best thing is to include a ‘shotgun clause’ whereby either one of you can buy the other out at the price the other offers for your half.I’d probably also get an experienced partnership attorney to represent your partnership. That will motivate him/her to draft a document that is fair to you both. My 2 cents worth,-jl-
Thanks Jefferson for the input