1. Real Estate Financial Modeling’s
Annual Report On Real Estate Joint Venture Equity Partnerships
Annual Report On Real Estate Joint Venture Equity Partnerships
Formed And Proposed In 2011
Be in the know, gain insights and negotiate better JVs.
Presentation by Bruce Kirsch
Founder, Real Estate Financial Modeling
Copyright © 2012 Real Estate Financial Modeling, LLC. All Rights Reserved.
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2. About REFM
• Founded in 2009 by Bruce Kirsch
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• Solutions provider for financial analysis,
financial modeling training and data for
commercial real estate transactions.
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3. About Bruce Kirsch
Bruce Kirsch is the founder and principal of Real Estate
Financial Modeling, LLC (REFM), a financial analysis and
training solutions provider that specializes in the financial
modeling of real estate joint venture partnership
structures. REFM also consults to billion‐dollar real estate
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organizations as STYLE
investors.
Mr. Kirsch is an Editor of the Third Edition of Wharton
Professor Peter Linneman's Real Estate Finance
and Investments: Risks and Opportunities, the leading real
estate finance textbook.
Mr. Kirsch instructs on real estate finance and financial
modeling as Adjunct Faculty at Georgetown University. A
highly‐acclaimed financial modeling trainer, Mr. Kirsch
previously worked in commercial brokerage and real estate
investment in New York and Washington, DC. Mr. Kirsch
holds an MBA in Real Estate from The Wharton School and
a BA in Communication from Stanford University.
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4. What REFM Offers
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5. Our Clients
• Small, Medium and Large Developers, Investors,
Lenders, Brokers and other stakeholders
L d B k d h k h ld
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o Vornado
o WRIT
o Abu Dhabi Investment Authority
o Alvarez & Marsal
Al &M l
o Clark Enterprises
o Skanska USA Commercial Development
Skanska USA Commercial Development
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6. Our Newest Offering
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My consulting clients wanted to know:
What is “market” for JV structures?
What is “market” for JV structures?
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7. Our Newest Offering
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First and only of its kind.
Over $400MM in Equity Investment represented.
Over $400MM in Equity Investment represented
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8. Our Newest Offering
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Be in the know, gain insights and negotiate better JVs.
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9. Today’s Agenda
• Rationale For Partnering, Risks and Optimal
Structuring Theory
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• Standardized Nomenclature
• 2011 Actual Structures and Surprises
• How Real Deals Can Benefit You
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10. Why One Seeks A Joint Venture Partner
• As the Sponsor (Owner/Developer), you need:
• Capital
p
• Better access to lenders
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• Sellers to believe that you will close
• Better third party provider pricing
• Strategic and technical expertise
• As the Investor, you need an investment vehicle:
• Developments
• Existing income‐producing properties
• Mortgage Notes
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11. Risks: Financial And Other
• Front‐end acquisition/development funds
(borne by Sponsor)
(borne by Sponsor)
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• Construction budget shortfalls (shared pro‐
rata?)
• O
Operating deficits (shared pro‐rata?)
ti d fi it ( h d t ?)
• Loan Guaranties (shared pro‐rata?)
Loan Guaranties (shared pro rata?)
• Reputational
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12. Joint Venture Partnership Cash Flow Splitting
The fundamental question:
Given how much and when cash investment
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goes in to the transaction from each party,
and the unique roles that the parties play,
when should the original capital invested, and
the returns on that capital, come out of the
transaction, and how should it be partitioned
to each party?
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13. Nomenclature For 2 Equity Players Only
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Principal = Sponsor
Pi i l S Third Party Investor
Thi d P t I t
Owner of the asset Invests in the transaction
Developer of the asset kljklj
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14. Is Proportional (Pro‐Rata) Financial Reward Desired?
Financial Risk
a ca s Financial Reward
a ca e a d
Sponsor Third Party Investor Sponsor Third Party Investor
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10% 10%
90% 90%
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15. Disproportionate Reward To The Sponsor Is Market
Financial Risk
a ca s Financial Reward
a ca e a d
Sponsor Third Party Investor Sponsor Third Party Investor
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10%
30%
90% 70%
Total Net Cash Flow is weighted
p p y p
disproportionately in favor of the Sponsor…
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16. Sponsor Pilots And Lands The Plane With Intense Focus
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17. What If There Are 3 Equity Players?
Investment Entity
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Overall Sponsor Third Party Investor
Minority
Sponsor
Investor
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18. Teaming Up With Third Party Capital
Principal/
Principal/ Partner
P t Investor/Third Party
I t /Thi d P t
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Sponsor Investor
Sponsor’s
p
Owner equity Invests in the transaction
/developer partner Invests in the fund
“Overall Sponsor” JV
Entity
E tit
First JV Partnership
Formed
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19. Teaming Up With Third Party Capital
Overall Sponsor
O ll S Investor/Third Party
In estor/Third Part
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JV Entity
Comprised of both Sponsor Invests in the transaction
and Partner Invests in the fund
Second JV Partnership
Formed
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20. How Equity Might Be Broken Out ‐ $20MM
First JV % Total Equity Amount
Partnership
Formed:
Sponsor Equity 1.00% $200,000 “Top‐Level
90/10
Partner Equity 9.00% $1,800,000
Sponsor”
S ”
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Second JV
Partnership
p
Third Party Investor Equity 90.00% $18,000,000 Formed:
90/10
100.00% $20,000,000
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21. Cash Flow Partitioning
• How can cash flow splits be commensurate with
both risk taken and value added?
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• How is it typically structured?
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22. No “Formula”
• Unfortunately, there is no typical structure
across property types, geographies, transaction
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types and the hundreds of thousands of
partnerships investing in real estate
• N ti ti
Negotiation‐specific
ifi
• All revolve around the end goal
All revolve around the end goal
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23. The Real Deals Database Gives Us Insights
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24. The Real Deals Database Gives Us Insights
• The structuring details on a variety of actual
transactions that are being put together in the
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market today
• Terminology is standardized
• R
Records are redacted to encourage submissions
d d d b i i
• The Database becomes more valuable with
every new record entered…
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25. 2011 Actual Transactions
• 19 Records comprising over $150MM in Total
19 Records comprising over $150MM in Total
Invested Equity
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26. 2011 Actual Transactions
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27. 2011 Actual Transactions
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28. 2011 Actual Transactions
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29. 2011 Actual Transactions
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30. 2011 Actual Transactions
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31. 2011 Actual Transactions
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32. 2011 Actual Transactions
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33. 2011 Actual Transactions
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34. 2011 Actual Transactions
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35. 2011 Actual Transactions – Surprise #1
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36. 2011 Actual Transactions – Surprise #2
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37. 2011 Actual Transactions – Surprise #3
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Development, Construction Management, Acquisition, Leasing, Property
Management, Asset Management and Disposition. Most prevalent were
Acquisition and Property and Asset Management.
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38. 2011 Actual Transactions
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39. 2011 Actual Transactions – Surprise #4
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40. 2011 Actual Transactions – Surprise #5
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41. 2011 Actual Transactions
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42. 2011 Actual Transactions
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43. 2011 Actual Transactions
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44. 2011 Actual Transactions
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45. 2011 Actual Transactions
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46. 10% Coupon Code – Good Through Next Wednesday
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REALDEALSWEB
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47. Even Bigger Discount Available
• Submit a valid JV structure and get 50% Off all
Submit a valid JV structure and get 50% Off all
Real Deals products
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• Go to www.GetREFM.com and click on:
Real Deals Data
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48. REFM’s Satisfaction Guarantee
If you are not satisfied for any reason, simply
If you are not satisfied for any reason simply
notify us in writing within 30 days of the date
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of your purchase and we ll give you a 100%
of your purchase and we’ll give you a 100%
refund.
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49. Be in the know, gain insights and negotiate better JVs.
Go to:
www.GetREFM.com
www GetREFM com