LSI 2010 Real Estate Joint Ventures conference materials.pdf
LSI 2010 Real Estate Joint Ventures conference materials.pdf
LSI 2010 Real Estate Joint Ventures conference materials.pdf
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David E. Myre, Jr. of Hillis Clark Martin & Peterson, P.S.<br />
Jane Rakay Nelson of Lane Powell PC<br />
Investor: Agreement to agree is unenforceable, unacceptable. Once initial capital<br />
contributions are made, Investor will have almost all equity capital at risk.<br />
Developer should not have veto. Too much danger of deadlock (or a retrade) at<br />
very crucial moment.<br />
Developer: Investor should not be able to unilaterally issue additional capital call<br />
notice whenever nervous. Investor has much deeper pockets, could take<br />
advantage by precipitating Developer default when Developer short of cash.<br />
Investor: First, Investor is a blind pool investment fund, which is now closed.<br />
Fund may be fully invested at time problem arises. Raising additional capital<br />
would be difficult and painful. Do not assume that Investor has deep pockets<br />
and is a free spender without limits.<br />
Second, any additional capital contributions will be per Percentage Interests.<br />
Investor will contribute 90% of the amount needed by the Company. That’s a<br />
great deterrence to issuing additional capital calls wily-nily.<br />
Third, the Term Sheet says Investor must “reasonably determine” the need<br />
for an additional capital call.<br />
Developer: “Reasonably” means what? Not comfortable. Must have a trigger on<br />
additional capital calls that is objective and neutral.<br />
Investor: Okay. Suggestions:<br />
(1) After we form joint venture and take down Site, JV will finish design<br />
and permitting, and negotiate construction contract and construction loan<br />
documents, based on commitment from Optimism Bank. Then a “Construction<br />
Loan Closing.” One pre-condition: submission and approval of final<br />
construction budget. If that agreed-upon budget shows shortfall in equity<br />
capital, there will be mandatory additional capital contributions at that time.<br />
(2) After Loan Closing, JV will submit Monthly Draw Reports showing<br />
financial results to date. Will be prepared by JV’s accountants, submitted by<br />
you, and approved by Lender. If approved Monthly Draw Request shows<br />
actual or prospective equity capital shortfall, there will be mandatory capital<br />
calls.<br />
Speaker 9b: 2<br />
Speaker 10b: 2<br />
DWT 12265643v1 0000099-071219<br />
2<br />
Law Seminars International | <strong>Real</strong> <strong>Estate</strong> <strong>Joint</strong> <strong>Ventures</strong> and Funds | 02/08/10 in Seattle, WA
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