LSI 2010 Real Estate Joint Ventures conference materials.pdf
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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. Jane Rakay Nelson of Lane Powell PC Speaker 9b: 6 Speaker 10b: 6 Investor: I seem to have touched a nerve. Well, as to the enforceability, these terms are quite typical and are specifically authorized by Delaware law. It’s a little unusual, but you may have noticed that I attached a copy of the pertinent section of the Delaware statute---section 18-502(c)---to the Term Sheet as an exhibit. Take a look. Tell you what. Let’s postpone further discussion of this last topic until we come back to the “removal” and “Default” provisions later in the Term Sheet. Investor is concerned about the scenarios of the Project running into serious trouble, Developer deciding to “give up” on the Project, and intentionally refusing to honor a series of additional capital calls. And Investor not being able to dislodge Developer and take control of the mess. But let’s try to address that concern when we get to the subject of Manager removal and Member default. Developer: Okay. One last question. I gather from the Term Sheet that Investor proposes a different, much simpler approach to the subject of additional capital contributions after the JV achieves Project Stabilization. Why is that? Investor: Three reasons. First, once it hits Project Stabilization, the JV has passed through a phase of relatively high risk and into a period of much lower risk. Almost all of the development, construction and lease-up risks will be behind us. The most likely scenario leading to an equity capital shortfall after Project Stabilization would probably be an uninsured casualty, or a design or construction defect not covered by the warranties, or a major lease rollover requiring substantial, unanticipated tenant improvements. So, generally speaking, Investor feels there will be much less likelihood of needing to make unforeseen additional capital contributions after Project Stabilization. Second, soon after Project Stabilization the JV will refinance the Construction Loan with the Term Loan described in the Term Sheet. Investor anticipates that, unlike the Construction Loan, the Term Loan will permit subordinate financing for the Project, at least if it is an unsecured loan to the Company. So we will be able to use a simpler structure to deal with the scenario if a Member decides not to make an additional capital contribution – namely, a direct loan by the other Member to the JV. Third, as mentioned in the Term Sheet, the JV agreement will provide that, after Project Stabilization, the Members will go through an annual process of mutually approving an annual budget and annual business plan for the DWT 12265643v1 0000099-071219 6 Law Seminars International | Real Estate Joint Ventures and Funds | 02/08/10 in Seattle, WA

David E. Myre, Jr. of Hillis Clark Martin & Peterson, P.S. Jane Rakay Nelson of Lane Powell PC Company. That process should be useful to identify any unforeseeable equity capital shortfall, and permit the Members to discuss possible solutions in a deliberate, informed manner before the problem is on top of us. That’s why Investor has proposed a simpler approach to additional capital calls after the JV achieves Project Stabilization. Developer: Okay, let’s move on. Speaker 9b: 7 Speaker 10b: 7 DWT 12265643v1 0000099-071219 7 Law Seminars International | Real Estate Joint Ventures and Funds | 02/08/10 in Seattle, WA

David E. Myre, Jr. of Hillis Clark Martin & Peterson, P.S.<br />

Jane Rakay Nelson of Lane Powell PC<br />

Company. That process should be useful to identify any unforeseeable equity<br />

capital shortfall, and permit the Members to discuss possible solutions in a<br />

deliberate, informed manner before the problem is on top of us. That’s why<br />

Investor has proposed a simpler approach to additional capital calls after the JV<br />

achieves Project Stabilization.<br />

Developer: Okay, let’s move on.<br />

Speaker 9b: 7<br />

Speaker 10b: 7<br />

DWT 12265643v1 0000099-071219<br />

7<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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