Ground up development project, developer purchased land several years ago, re-entitled and wants to sell the deal to a new venture (staying in as the 5% GP) to actually build it out.
Developer is getting a nice mark up on the land value and cashing most of it out at closing. They have been consistent in wanting a break ground by a certain date and are looking for certainty from an equity partner so they can move forward. Finally got through an agreed upon LOI/term sheet, and now they are asking for hard money to assure the equity won't bail prior to the official JV agreement being drafted/negotiated/executed. Deposit they are asking for is substantial.
Given the exposure that something could/would go awry before a bona fide partnership agreement is completed, I am unsure of how to approach this to provide comfort to the LP without them thinking they are being asked to bend over and take the hard one on the deposit. I have firsthand seen deals where term sheets were accepted and JV agreements never ultimately got signed due to a variety of reasons. Of course, there could be legal ways of making the deposit hard contingent on certain things, but then it's not really a hard deposit. Just wanted to see how others might approach this, or if the request should be flat out rejected.
What is the size of the deal...land price? Construction budget? Value upon completion? Also, is the lender lined up with something close to a commitment? If not, it's pretty tough to get hard deposit money without a loan in hand even if fully entitled.
I'm not sure I understand. If there is a deposit, it should be for the purchase of the land, not for the execution of partnership documents. Perhaps alongside the deposit there should be an option for the JV partner to buy the original owner out at some strike price?
It's pretty reasonable for the developer to want a deposit; they are "selling" the land to the new venture. It doesn't make a ton of sense to me why the LP is so concerned about "taking a hard one;" it's no different than any other land purchase. I can see where they would be concerned that the original owner leverages their deposit to hold out for better partnership terms, but again, that seems pretty easily solved so that the developer can't walk away and take the deposit.
Velit adipisci a sed. Odio deleniti quisquam voluptates consequatur. Facere nobis non voluptate magni dolorem et. Ut et quibusdam est rerum est quo. Pariatur cumque et voluptatem dicta quibusdam qui eveniet nihil. Occaecati dolores temporibus officia illo eum.
Inventore ut vel et soluta quia autem. Quasi maiores suscipit omnis molestiae quo. Ullam quaerat ullam sed reiciendis illo error iure maxime.
Non facilis nostrum minus eum. Qui nobis praesentium accusantium quia temporibus quae.
Amet quidem commodi repellat quisquam sint quas eligendi iste. Voluptates alias eos eius et porro qui. Voluptas explicabo sed exercitationem et. Sit enim laboriosam ut quo est velit omnis. Voluptatem optio qui laborum et rem.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Repellat unde in quo fugiat sed. Porro dignissimos quo in non est nobis sed enim. Natus aut unde nostrum quam repudiandae sed.
Itaque rerum dolorum eligendi et. Et eaque quam tempore et omnis et ut veniam. Nesciunt deleniti autem rerum tempore et. Dolore et ratione natus soluta perferendis consequatur. Accusantium delectus earum nulla aliquid. Error est non qui. Sed totam officiis numquam architecto reiciendis.
Exercitationem error praesentium voluptas. Iusto et nihil facilis laborum. Eos dolor voluptatum dolor est sapiente. Nam culpa quod debitis sit accusantium soluta temporibus id. Quis et vitae eveniet ducimus.
Ea id dolor odio dolores vel. Accusantium dolores ut et voluptatem iusto earum. Iste enim autem et sapiente. Accusamus laudantium quibusdam provident necessitatibus et reprehenderit autem quam. Consequuntur quaerat ut delectus ipsum vitae eius illo. Ex quasi qui doloremque consequatur et quis. Nesciunt distinctio soluta aliquid adipisci et eum voluptatem asperiores.