Structuring Real Estate Joint Ventures to Address Loan and Manager Defaults, Bankruptcy, Distressed Property

Management Removal Provisions; Effect on Promote, Distributions, Exit Rights, Third-Party Contracts

Recording of a 90-minute CLE webinar with Q&A


Conducted on Thursday, August 30, 2018

Recorded event now available

or call 1-800-926-7926
Program Materials

This CLE webinar will enable real estate counsel to draft joint venture agreements which anticipate and provide a structure for addressing loan defaults, poor property performance, and bad acts by the manager or general partner. The panel discussion will include manager removal and related provisions which enable investors to take control and mitigate losses.

Description

The term of a joint venture agreement might extend well beyond the current real estate boom. Counsel must include provisions which contemplate contingencies such as manager defaults or “bad boy” acts under the JV agreement, defaults on a mortgage or other financing, and bankruptcy. If the property is perceived to be underperforming or mismanaged, the investor will want the right to act swiftly to protect its investment, particularly in connection with the removal of the real estate operator from its role as the manager.

In addition to removal of the operator as manager, investor protection may include minimizing or extinguishing the operator’s right to promote and other income, and terminating third-party contracts entered into by and benefitting the operator. Conversely, the operator will want to protect its position by seeking notice and cure rights, restricting the definition of removal events, and negotiating the degree of loss of promote and other rights after removal.

In most JV agreements, the investor will insist upon including a set of “Significant Removal Events.” These include nonrecourse carve-out type defaults including criminal activity, fraud and misappropriation. Other matters that can trigger a Significant Removal Event include a “Key Man” event, voluntary and involuntary bankruptcy, the manager taking specific material actions without obtaining the investor’s approval, prohibited transfer, and gross negligence or intentional misconduct.

Listen as our authoritative panel discusses provisions which should be included in real estate joint ventures to address the potential downside to the transaction, the rights of the parties in the event the investors seek to remove the operator, and the impact of removal on distributions, buy-sell provisions and third-party arrangements.

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Outline

  1. Real estate joint ventures: roles of operator and investor partner(s) when deal is going as planned
  2. Events which may trigger defaults under the JV agreement
    1. Poor property performance, mismanagement
    2. Loan default
    3. Default or bad acts by the operator/manager
  3. Removal of manager
    1. Significant Removal Events
    2. Notice and cure provisions
    3. Impact on promote, capital contributions, distributions
    4. Property management and other third-party contracts

Benefits

The panel will review these and other critical issues:

  • When should an investor be entitled to remove and replace the operator/manager of the joint venture?
  • What are the primary concerns of the investor vs. the manager in negotiating removal provisions in the JV agreement?
  • How might a change in management impact promote, capital contributions and distributions?

Faculty

Brown, Stuart
Stuart Brown

Partner
DLA Piper

Mr. Brown's practice encompasses the representation of institutional lenders, investors and business enterprises in...  |  Read More

Maira, Thomas
Thomas G. Maira

Partner
DLA Piper

Mr. Maira represents a large range of clients in all asset classes across the U.S., including private equity funds,...  |  Read More

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