How Would You Structure This Equity Swap?

MastersinCRE's picture
Rank: Monkey | banana points 60

Scenario

  • Investor Group A owns a 100ish unit complex built in 2016 with a market value of $19 million.
  • Investor Group B owns a 200ish unit complex built in 1990 with a market value of $19.2 million.

The 1990-built asset offers significant upside through unit renovations, but the 2016-built asset is a coupon clipper.

Investor Group A and Investor Group B would like to swap a portion (but not all) of their equity for a part ownership of the other investors asset. Furthermore, control rights would swap - Investor Group A would take over control of Investor Groups B's asset and vice-versa.

Pretty straight forward so far, right?

Well, Investor Group A (that'll be acquiring a piece of the value-add deal) would like to bring in Investor Group C to act as GP, manage the renovations and compensate them via promote (profit split above some hurdles). Investor Group C would have no interest in the 2016-built asset ... only the value-add deal.

Given the addition of Investor Group C - how would you structure that deal?

Happy to answer any followups...i'm sure this is somewhat confusing.

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