An online database housing anonymized equity joint venture partnership structure details for US-based commercial real estate transactions. Data comes from a proprietary REFM survey with all data points vetted by REFM founder Bruce Kirsch.
- investment type and property type
- general geography and submarket
- total transaction dollar size, timeline and projected IRR and multiple on equity
- total transaction debt financing %
- number of equity players and % share of investment each
- sponsor credit, track record and lender contact network depth
- guaranteed fees and performance-based fee types and amounts
- loan guaranty, construction shortfall and operating deficit responsibility
- priority and shares of cash flow distributions
- return of capital
- preferred return rate and frequency of compounding
- waterfall tier IRR hurdle rates and equity multiple hurdles
- any unique split characteristics related to disposition
- any catch-up or clawback mechanisms.
One of the challenges to both deal sponsors and investors with closing Joint Venture partnerships for individual real estate transactions is getting accurate information as to how other JVs are being consummated. If we knew what structures were actually getting sponsors and investors to team up, then we could be more realistic in our expectations of our counterparty’s requirements, and in our financial analyses, and we could get more JVs done faster and at lower cost.
There are dozens of important facets to every JV: capital contributions, sponsor fees and loan guaranties, operating deficit and/or construction shortfall liabilities, the priority return of capital to the investor, Preferred Returns and residual profit sharing Promotes, just to name a few. And the devil is in the details. The substitution of an “or” in place of an “and” in one of our partnership agreements can mean millions of dollars in profits forfeited or gained.
The questions in the Survey use the context and nomenclature shown in the diagram below to identify the various players involved on the equity side. The diagram shows the existence of, at a minimum, a single partnership structure – that between the Overall Sponsor and the Third Party Investor. If there is a Minority Investor, there is also a separate partnership structure in place between the Sponsor and the Minority Investor (which, collectively, comprise the Overall Sponsor).
Overall Sponsor – As shown above, if there is a Minority Investor, the Overall Sponsor comprises both the Sponsor and the Minority Investor. If there is no Minority Investor, the Sponsor is the Overall Sponsor.
Sponsor – The Developer of or Principal investor in the asset.
Minority Investor – The Sponsor’s investment partner, if any. Relative to the Third Party Investor, the Minority Investor provides a minority share of capital.
Third Party Investor – The Majority Investor in the transaction.
Equity Investor Entity – any of Sponsor, Minority Investor and Third Party Investor.
Preferred Return – The priority return on invested capital paid to either just the Third Party Investor, or to both the Third Party Investor and Overall Sponsor. If there is a Minority Investor, the Preferred Return for the Sponsor and Minority Investor’s separate partnership structure is the priority return on invested capital paid to either just the Minority Investor, or to both the Minority Investor and to the Sponsor.
Pari Passu – Distribution of cash flow to the equity partners simultaneously, on a pro-rata basis to (in proportion to) the respective shares of Total Equity Investment at the time of distribution.
Promote – The additional share of net cash flow (profit) paid by the Third Party Investor to the Overall Sponsor above and beyond the Overall Sponsor’s pro-rata share of Total Equity Investment. If there is a Minority Investor, the Promote for the Sponsor and Minority Investor’s separate partnership structure is the additional share of cash flow paid by the Minority Investor to the Sponsor above and beyond the Sponsor’s pro-rata share of Equity Investment between the Sponsor and Minority Investor only.
Internal Rate of Return (IRR) Waterfall – A multi-tier sliding scale cash flow distribution structure that increases the Promote amount as various hurdles for the IRR are exceeded.
Equity Multiple Waterfall – A multi-tier sliding scale cash flow distribution structure that increases the Promote amount as various hurdles for the return on equity multiple are exceeded.
The database contains 48 equity joint venture partnership structures for commercial real estate transactions.
Snapshots of the database interface and an individual transaction record appear below.
Snapshot of database interface:
Snapshot of individual database record: