LSI 2010 Real Estate Joint Ventures conference materials.pdf

Gregory K. Johnson of Wright Runstad & Company
Preston R. Sargent of Kennedy Associates Real Estate Counsel, LP
Speaker 5: 3
Speaker 6: 3
MEHP Management Fee
Section 3.04 of the MEHP agreement states:
• “… the Partnership shall pay to the General Partner a fee for
each calendar quarter for management services (a) during the
Commitment Period, in an amount equal to .3% of total Capital
Commitments and (b) after the Commitment Period … in
amount equal to .3% of the sum of (i) the average aggregate
Invested Capital of all Partners plus (ii) the average aggregate
Remaining Capital Commitments that may be called to fund
amounts committed to Investments on or prior to the end of the
Commitment Period…”
• Invested Capital is defined as Capital Contributions plus
Unallocated Contributions less amounts distributed.
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Typical JV Development Structure
Property Type:
Office or Industrial Development
Ownership Equity Structure: Kennedy Client 90% to 97%
Developer 3% to 10%
Debt:
Zero to 60% max
Completion & Cost Guaranty: Developer guaranties on time completion subject to late penalties.
Developer guaranties cost overruns.
Development Fee:
2% to 3.5% of controllable cost depending on project size.
Sometimes a fixed dollar amount.
Completion:
Promote/Earnout to Developer:
Promote payout:
Developer Management Fee:
Major Decisions:
Fee is earned based on a completion schedule with some level of holdback
to secure completion and cost guaranty.
Sometimes includes incentives for on-time completion and for cost savings.
Definition varies with project objective. On short holds, completion is sale
of the property. Longer term holds, completion can be 90% occupancy
within say 18 – 24 months and obtaining Certificate of Occupancy.
Pro-rata distributions to Kennedy Client and Developer up to a
hurdle rate (8 – 9%) then a waterfall.
Example:
1) 90/10 pro-rata to an 8% IRR to Kennedy
2) 75/25 to a 13% IRR
3) 65/35 above a 16% IRR
Paid on sale or based on appraisal after stabilization
At market rate
Sale or financing must be controlled by Kennedy
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Law Seminars International | Real Estate Joint Ventures and Funds | 02/08/10 in Seattle, WA