Wealth Opportunities in Commercial Real Estate: Management, Financing, and Marketing of Investment Properties

Partnership Structuring

There are numerous ways to structure a partnership. Some of the more common forms are:

• A joint venture agreement, which usually takes the form of a general partnership for a specific purpose.
• A limited partnership, where the equity contribution is usually represented by the limited partner's share. Very often, the general partner in the limited partnership (LP) is insulated from liability by being a limited liability company (LLC) or a corporation. Today, the same net result can often be accomplished by using the LLC as the owner rather than a limited partnership. This avoids the need for a general partner. This type of entity affords limited liability to all of its members. Tax issues often dictate which structure to use.
• The parties may execute a trust deed with a “kicker,” commonly referred to as a participating mortgage. Often, the equity piece is in the form of a junior mortgage.
• The financial partner may own the project and enter into a participating management agreement with the active partner or a participating ground lease.
• The passive partner may fund 100 percent of the acquisition costs and fix-up expenses with the borrower/active partner posting a satisfactory letter of credit for an equity cushion.

In each of these structures, the goal is for the active player to obtain the needed capital while rewarding the passive partner with a profit split of cash flow and/or profits on sale or refinance. Nonetheless, the form of the structure could have ...