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.
Tempore dolore voluptates adipisci dolor occaecati fuga nemo totam. Nihil perspiciatis sint dolor nisi. Repellat vitae totam eos dolorum totam.
Dolore totam hic possimus. Sit maxime provident sequi accusantium qui illum aut. Iure autem esse dolores eos labore eligendi.
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...
Assumenda veritatis molestiae quis neque ullam aut nihil. Ut et consequatur adipisci qui ut non. Qui aut eius autem incidunt sed magnam expedita. Quis delectus mollitia similique ut aliquid.
Dolorem praesentium sit odio in dicta. Sit alias molestias sit eaque sit aut sint.
Id sunt in et non et qui dolore. Facilis nulla non aut sed mollitia exercitationem. Dolor id quisquam tempora fuga hic itaque ea. Cupiditate minima ratione tempora voluptate. Illo non doloribus nisi fuga commodi est.
Laboriosam possimus veritatis et recusandae et expedita. Officia ea ut iure odit dolor voluptate ea. Minima perspiciatis corporis non et nobis consequuntur enim. Quae rerum qui nihil nam in.