What about the equity? : a qualitative analysis of governance provisions and return structures for equity investments in joint venture real estate projects
Name
65470576-MIT.pdf
Description
Full printable version
Size
161.08 KB
Format
Adobe PDF
Checksum (MD5)
defc5101eae560cc2eb331d9735c51b7
Author(s)
Jackson, Eric L. (Eric Lathrop)
Advisor(s)
Lynn Fischer.
Alternative Title
Qualitative analysis of governance provisions and return structures for equity investments in joint venture real estate projects
Date Issued
2005
Publisher
Massachusetts Institute of Technology
Abstract
This paper looks at the equity component of real estate finance -- the equity portion of the capital stack, if you will. It begins by characterizing the process through which real estate equity is secured by developers, and conversely, how it is placed by investors. It moves on to a discussion of the typical components of joint venture real estate LLC operating agreements -- the primary document used to formalize joint equity investments in real estate projects. Through the author's observation of a collection of operating agreements (primarily at the institutional level) governing both operating real estate projects and ground-up development projects, the paper discusses the six primary governance issues that are common across most joint venture real estate projects -- financing and capital structure, cash management, leasing, investment horizon, dispute resolution and defaults, and certain administrative issues. It further outlines how contractor control, control of the construction process and cash management issues emerge as the three additional critical governance issues in ground-up development projects.
(cont.) The paper continues with a discussion of the two primary return structure models prevalent in the market today -- preferred equity and participating equity. While the models are often tailored to meet the specific needs of parties to different transactions, the primary negotiated variables -- hurdle return rates, profit percentages (promotes), and carried interest amounts -- generally remain consistent. The author observes that the level of contractual control demanded by investors does not necessarily increase with projects of greater risk. Instead, the quantity of controllable issues increases. Further, there appears to be a positive correlation between the level of control demanded by an investor and the investor's level of investment in the project as a percentage of total equity. Additionally, as the priority of an investor's ownership claim rises (i.e. straight preferred equity over participating equity), the level of direct contractual control demanded by the investor tends to decrease.
Description
Thesis (S.M.)--Massachusetts Institute of Technology, Dept. of Urban Studies and Planning, 2005.
This electronic version was submitted by the student author. The certified thesis is available in the Institute Archives and Special Collections.
Includes bibliographical references (leaves 71-72).
Subjects
Urban Studies and Planning.
MIT Department
Massachusetts Institute of Technology. Department of Urban Studies and Planning
Terms of Use
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