Real Estate "Earn-Out" Structure
Does any one have experience with earn-out structures in real estate that aren't on the lending side. I realize this happens in development quite frequently, but what I'm looking for is on existing property. The situation would look like this: Investor owns a couple of properties and is looking to sell as markets are currently very strong and trends suggest that rates and other factors might be going in the wrong direction. Current vacancy in these assets is below desired occupancy level but sellers expectations for price would be based on a target occupancy (I.e. 75% v.s 90%). There is a gap in what an investor would pay because of the vacancy but seller is hoping to dispose. Would some sort of earn out where the buyer pays a market price based on current value and allows seller to participate in increased value based on lease-up work? Or would the typical scenario find the investor projecting for a certain period of vacancy and balancing risk v.s upside in their discount rate (with an aggressive mindset to try to close deal)
The latter. Never heard of earn outs outside of mortgages
I've done a couple off-market deals that had earn out features like the one you described.
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