Background:

Perlman Asset Management, LLC (PAM) signed a letter of intent to purchase a warehouse in Dothan, Alabama for $10 million. PAM plans to enter into a joint venture with Brown Real Estate Investments, LP (Brown) to redevelop the warehouse property into a new mixed use, multi-story facility, which venture will be managed by PAM. Brown intends to invest $180 million in the deal and PAM intends to fund $10 million in cash and contribute the Dothan warehouse to the venture at closing. PAMs current source of capital is a friends and family fund it has raised which requires that PAM run through a number of hoops to draw down those funds. PAM does not have substantial cash resources now, but the fund has made some recent investments in cannabis real property in California and Oregon that Daniel hopes will alleviate some of their cash flow issues going forward.

This is PAMs first significant joint venture. You already provided advice to PAMs President, Daniel, as to the entity form that would best suit this transaction, and how the answer could change depending on the identity of PAMs investors. Daniel has now come back to you with additional questions about the joint venture, and because he is leaving town soon and needs to get this deal finalized, he is looking for you to provide a short summary containing answers.

Please respond to the following questions from Daniel:

1. Capital Contributions

Daniel understands that there are typically negative consequences to a partner for not funding additional capital when required to do so. Daniel would like your view on what the potential consequences are to Daniel for failing to fund future capital contributions.

2. Distributions

Daniel tells you that Brown has offered to pay PAM a 10% promote after Brown and PAM receive a 10% IRR on their capital contributions, and a 20% promote after Brown and PAM receive a 20% IRR on their capital contributions. Daniel asks if you can draft what the waterfall will look like.

3. Management and Decision Making

It is critical to Daniel that PAM is the day to day manager of this joint venture. He asks you whether this is likely to be acceptable to Brown, and what limitations Brown might set on PAMs management rights. He also wants to understand if there are any circumstances under which Brown might strip PAM of its management rights.

4. Deadlock

Daniel and Brown have discussed using a buy-sell mechanism in certain circumstances. In what ways is David potentially disadvantaged in a buy-sell scenario, and how might he seek to negotiate that provision to improve his position?

5. Transfers

Browns investors need maximum liquidity for their investment and accordingly will require the right to freely transfer their interest in the joint venture at any time. This causes Daniel concern, as he has gotten comfortable with Brown as a partner, but it took him a very long time to do so. What type of rights should Daniel insist upon if Brown decides to sell its interest in the joint venture? Daniel also points out that if the cannabis investments do extremely well, he might want to quit the business and move to Nepal to raise yaks and become a Himalayan tour guide. How might Brown react to this information?