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Real Estate Joint Venture Tips

New Miami Blog

New Miami Blog
January 20, 2015

A recent New York Times article described the increased presence of New York developers in the South Florida condominium market. The fact is that Miami real estate market has always been a seductive one for out of state developers, and the upside in the development opportunities in the South Florida real estate market simply continues to proliferate. Best of all, more interest in South Florida means more opportunities for local developers to partner with or enter into joint ventures with those venturing into this market.

As South Florida developers look to partner with real estate firms and investors to develop projects in South Florida, South Florida developers should pay particular attention to the removal provisions of the joint venture agreements or management agreements entered into with these firms and investors.  Typically, the removal of the developer should be limited to “cause,” such as  the developer committing some kind of “bad act” or materially breaching an agreement. Developers should be cautious about agreeing to any “performance standards” or similar removal triggers, which can allow a developer to be removed from the deal through no fault of its own. In connection with a breach of the agreement, developers should negotiate materiality standards and notice and cure rights. In addition, developers should negotiate the right to cure any default caused by any employee by firing that employee and having the opportunity to cure any damage caused by the employee.

Finally, the developer should make sure to have its removal conditioned on the developer being released from any guarantees related to the project or, if the release cannot be obtained, being indemnified from a credit-worthy affiliate of the joint venture partner for such guarantees. The developer should not continue to be on the hook for the project guarantees after the developer is no longer involved with the management of the project.

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Alan D. Axelrod

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