Real Estate Joint Ventures: Rarely Equal Partners

2025-03-20 10:27:08 ET

Summary

• Joint ventures in real estate often have unequal terms, requiring careful scrutiny to ensure fair share and avoid potential pitfalls for REITs.
• Key JV terms include capital contribution ratios, sharing arrangements, preferred return, decision-making control, fee streams, and property contributions.
• Historical examples show REITs like CatchMark Timber Trust and Hersha Hospitality facing unfavorable JV terms, emphasizing the need for investor vigilance.
• GMRE's JV with Heitman leverages GMRE's acquisition expertise with Heitman's low-cost capital, creating a mutually beneficial arrangement with aligned incentives.

Joint ventures or JVs are a frequently used tool in real estate transactions. They are often presented as an equal partnership, but often have unequal terms. Sometimes the REIT gets the better half of the deal, and other times, they get screwed over. We have observed and documented multiple instances in each direction. I believe in learning from history, so we will discuss 2 instances in which REITs got the short end of the stick.

How is an investor supposed to evaluate whether a company is getting a fair share in their joint ventures?...

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