Timothy P. Selby Michael SaarinenAlston & Bird LLP Alston & Bird LLPNew York, NY New York, NYtim.selby@alston.com michael.saarinen@alston.com

I. Spectrum of RE investment structures

II. Programmatic JV rationale and overview

III. Programmatic JV structures

IV. Key Initial Considerations for Sponsors and Capital Sources

V. Exclusivity

VI. Economics

VII. Governance

Agenda

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This session will: Explain where programmatic JVs fit within spectrum of real estate investment

structures Highlight key questions to consider before pursuing a programmatic JV Identify critical terms to negotiate when forming a programmatic JV

Overview

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Wide range of RE investment structures One Extreme Single-property JV Traditional single-investor uncommitted structure

Other Extreme Blind pool real estate fund Traditional multi-investor fully-committed structure

I. Spectrum of RE investment structures

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Traditional uncommitted structure: Single-property JV

I. Spectrum of RE investment structures (continued)

Sponsor CapitalSource

JV Vehicle

Single RealEstate

Property

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Traditional committed structure: Fully committed blind pool fund

I. Spectrum of RE investment structures (continued)

Sponsor(GP)

MultipleInvestors

(LPs)*

Fund(partnership)

Real EstateProperty

Real EstateProperty

Real EstateProperty

Real EstateProperty

*Each fund investor’s indirectinterest in each portfolio property is“hard wired” to be pro rata based onsize of its capital commitmentrelative to the capital commitmentsof the other fund investors

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Real EstateProperty

There are a wide range of available structures along thespectrum between single-property JVs and blind pool funds The various hybrids have features from each end of the

spectrum

I. Spectrum of RE investment structures (continued)

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I. Spectrum of RE investment structures (continued)

Single-Investor Blind Fundor Blind Managed Account

(aka “Fund of One”)

(No investor commitment) (Investor fully committed)

Single-Property JVProgrammatic JV

(aka “Capacity Arrangement”or “Non-Committed Fund”)

Single-Investor Real Estate Investment Structures

• Sponsor establishes a JVwith an capital source toacquire a single specificproperty

• Sponsor grants the capitalsource a contractual right todecide, on case by case basis,whether to “opt in” to specificopportunities

• There is typically somerequirement that the capitalsource fund certaininvestments that fall withinpre-determined parameters

• Sponsor establishes a committedsingle-investor vehicle for thecapital source

• Sponsor pursues discretionaryreal estate investments for thevehicle in accordance with apredetermined strategy

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I. Spectrum of RE investment structures (continued)

Single-Property Fund(aka “Rifle Shot Fund” or

“Naked Fund”)

(No investor commitment) (Investor fully committed)Multi-Investor Real Estate Investment Structures

Pledge Fund(aka “Club Arrangement”)

Multi-Investor Blind Pool Fund(aka “Committed Fund”)

• Sponsor establishes a traditionalcommitted blind-pool fund topursue discretionary real estateinvestments in accordance with apredetermined strategy

• Sponsor grants eachparticipant a contractual rightto decide, on case by case basis,whether to “opt in” to specificopportunities

• There is often somerequirement that eachparticipant fund certaininvestments that fall withinpre-determined parameters

• Similar to “search funds”

• Sponsor establishes specialfund to acquire one specificproperty and must raiseequity separately for eachtransaction

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Programmatic JV may naturally evolve from a one-off collaboration A profitable single-property JV encourages sponsors and capital sources to

structure an ongoing investment relationship Model set of JV terms have been negotiated Parties have developed trust with one another Collaboration has demonstrated value

Transitioning from a one-off JV to a programmatic JV brings manychallenges

II. Programmatic JV rationale and overview

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Benefits to sponsor Reduced risk of insufficient capital to consummate acquisition Increased efficiency Credibility of association with institutional capital Reduction of sponsor co-investment amount Path from property manager to fund manager

II. Programmatic JV rationale and overview (continued)

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Benefits to capital source Gain market knowledge and operational expertise Access to sponsor deal flow Deepen relationship with sponsor Significant investment optionality in comparison to a blind pool fund

II. Programmatic JV rationale and overview (continued)

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Typical Features of Programmatic JV Sponsor agrees to present all opportunities it identifies within certain

parameters to the capital source for a prescribed period of time Examples: Deal size Property type Geography

Capital source is expected to provide funding for proposed deals, althoughits commitment is typically softened by significant contractual carveoutsand exceptions

II. Programmatic JV Rationale and Structure (continued)

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Option 1: Umbrella agreement (aka “sibling structure”) Master umbrella agreement sets framework for relationship between

sponsor and capital source A separate investment vehicle is typically established for each investment

opportunity Each investment is typically treated separately Advantages: (1) flexibility of terms and (2) separate accounting

III. Programmatic JV structures

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III. Programmatic JV structures (continued)

CapitalSource

Sibling JV 1*

Sponsor

Sibling JV 2*

CapitalSourceSponsor Sponsor Capital

Source

Sibling JV 3*

Property 1 Property 2 Property 3

Programmatic JV Sibling Structure (Umbrella Agreement)

* Umbrella agreement sets terms of sibling JVs and transaction documentation

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Option 2: Holding company structure Sponsor and capital source each owns interests in a holding company Holding company acquires each asset through a acquisition-specific

subsidiary Advantages: (1) enables holding company to serve as guarantor and (2)

enhances efficiency of documentation and formation Capital sources may also prefer holding company structure because it

lends itself more easily to netting of deal economics

III. Programmatic JV structures (continued)

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Programmatic JV Holding Company Structure

III. Programmatic JV structures (continued)

Property 1 Property 3Property 2

AcquisitionSubsidiary 1

HoldingCompany

Sponsor Capital Source

AcquisitionSubsidiary 2

AcquisitionSubsidiary 3

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Questions for Sponsors Is a programmatic JV the best structure to achieve sponsor’s objectives? Is the capital source willing and able to move quickly to consummate deals? What are the reputational risks of joining forces with the capital source?

Questions for Capital Sources What are the sponsor’s “key man” risks? Does sponsor have adequate infrastructure and operations?

Questions for Both Parties Does counterparty have prior experience with programmatic JV investing? Does counterparty have a history of issues or disputes in prior JV arrangements? Does counterparty and its counsel have the experience and sophistication necessary to

efficiently reach agreement on a programmatic JV arrangement? Is time and effort of negotiating a programmatic JV likely to be worthwhile?

IV. Key Initial Considerations for Sponsors andCapital Sources

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Exclusivity: hot button issues Duration Deal parameters E.g., asset class, geography, size, etc.

Amount of discretion within deal parameters Timing requirements Termination events Will termination occur if capital source rejects specified number of opportunities? Will termination occur if sponsor fails to source a specified number of

opportunities? Sponsor’s rights with respect to rejected deals

V. Exclusivity

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Economics: hot button issues Carry calculation Deal-by-deal carry or whole-fund carry

Costs of pursuing deals Other fees and expenses Financing guarantees Consequences of default

VI. Economics

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Governance: hot button issues Day-to-day decisions Major decisions Deadlock events Exit strategies

VII. Governance

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Questions?

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