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 />
And, for reasons too complicated to explain here, this preferred return formula<br />
– that is, first priority return of capital plus 8% per annum – should also apply<br />
to the mandatory additional capital contribution made by Performing Member<br />
in response to the capital call notice and in accordance with its own percentage<br />
interest.<br />
Developer: Wow, that sounds too rich. Let’s hear about the second alternative.<br />
Performing Member makes a loan to the Defaulting Member, in the amount of<br />
the missing capital, but never actually sees the cash; it goes right to the JV’s<br />
bank account?<br />
Investor: That’s right; or possibly into a deposit account for the benefit of the JV<br />
controlled by the Construction Lender.<br />
As a result of that funding, the Defaulting Member is deemed to have complied<br />
with the additional capital call, and total capital contributions on the books of<br />
the JV remain in balance at 90-10.<br />
Meanwhile, Developer is considered to have borrowed the funds used to make<br />
this past-due additional capital contribution from Investor. This loan is<br />
repayable whenever Developer can and wants to retire it. Meanwhile, it will<br />
bear interest at a reasonable rate – say 8% per annum – and will have<br />
commercially reasonable loan terms. For example, a maturity date tied to the<br />
anticipated date for Project Stabilization. And security, in the form of a pledge,<br />
by the borrower Member, of its membership interest in the JV. Plus an<br />
assignment of all distributions by the JV with respect to that membership<br />
interest until this loan is fully repaid.<br />
Developer: And these two alternatives for dealing with a missed capital<br />
contribution will be available to either Member? That is, if Investor does not<br />
make an additional capital call when due, then our company, Developer, can<br />
use one of these mechanisms to cover the capital shortfall?<br />
Investor: Of course. What could be more fair than that?<br />
Speaker 9b: 4<br />
Speaker 10b: 4<br />
Developer: The Term Sheet has some additional penalties that are only applicable<br />
to our company, Developer, if we fail to make an additional capital<br />
contribution. Those terms aren’t fair – they are unfair and unacceptable. What<br />
gives?<br />
DWT 12265643v1 0000099-071219<br />
4<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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