We’re at the finish line and Sam has successfully landed a few different institutional investment groups interested in providing him with programmatic capital to go acquire multiple deals after closing on Washington Place.

The first thing Sam will need to do when entering into these negotiation is to think like an institutional investor and remember why they’re interested in the partnership:

• Deploy capital efficiently.
• Avoid internal operational complexity.
• Preserve upside
• Limit downside
• Control!

Sam also needs to keep in mind that most joint venture investors are looking to invest more, not less capital. They also want to maximize alignment with the sponsor and they look to minimize fees so they are not a profit center–looking to allocate most of the compensation to Sam’s carried interest. They will also require a co-investment by the GP which is meaningful for Sam and ensure it’s very painful for him if he does not execute successfully.

We’ll then work with Sam to negotiate the final terms of his term sheet, which will include the following sections:

Warrants in OpCo: Rights granted to the institutional investor to purchase equity in the Koala operating company under certain conditions.

Capital Commitment: The total amount of capital that the institutional investor agrees to contribute to the joint venture.

Legal Structure: The specific legal entity or framework under which the joint venture is organized and operates.

GP Co-Investment: The amount of capital that Sam commits to invest alongside the institutional investor.

Buy Box & Investment Criteria: The specific types of properties or investments that the joint venture will target based on agreed criteria.

Term & Exclusivity: The duration of the joint venture and any exclusivity arrangements between Koala and the investor.

Approval Process: The steps and decision-making process required to approve investments within the joint venture.

Capital Release: The conditions and timing under which the institutional investor’s capital is made available for investments.

Pursuit Costs: Expenses incurred during the due diligence and acquisition process, typically reimbursed by the joint venture.

Koala Compensation: Specific performance-based compensation or incentives provided to the sponsor for meeting certain milestones.

Carried Interest: The share of profits that Koalaearns after the institutional investor’s capital is returned and a preferred return is achieved.

Management Fee: A fee paid to Koala for managing the day-to-day operations of the joint venture.

Acquisition Fee: A fee paid to Koala for sourcing and acquiring properties on behalf of the joint venture.

Carried Interest Crystallization: The timing and conditions under which Koala’s carried interest is calculated and paid out.

Credit Facility: A line of credit or loan facility available to the joint venture to finance acquisitions or operations.

Portfolio Management: The ongoing management and strategic oversight of the properties or investments within the joint venture’s portfolio.

Exit and Drag/Tag Along Right: Provisions that outline the process for exiting the joint venture and the rights of partners to participate in a sale.

MAC Triggers: Material Adverse Change clauses that allow the investor to withdraw or alter commitments if significant negative changes occur.

Capacity Rights (ROFO/ROFR): The sponsor’s rights of first offer or refusal on future investment opportunities within the joint venture.

‍