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Course Details

Course Information
  • smart_display Format

    On-Demand

  • signal_cellular_alt Difficulty Level

    Intermediate

  • work Practice Area

    Real Property - Finance

Date & Time
  • event Date

    Tuesday, February 25, 2025

  • schedule Time

    1:00 p.m. ET./10:00 a.m. PT

  • timer Program Length

    90 minutes

Credit Information

  • This 90-minute webinar is eligible in most states for 1.5 CLE credits.

$347.00
CLE
ALL

This CLE webinar will discuss the benefits and drawbacks of using promote crystallization; the mechanics of promote crystallization, including triggering events; calculating the promote and how the promote is paid; and negotiating and drafting considerations for promote crystallization provisions.

Faculty

Danny Guggenheim
Member/Co-Chair, Real Estate Practice
Mintz

Mr. Guggenheim is an accomplished commercial real estate attorney who focuses his practice on traditional real estate matters, such as acquisitions, dispositions, and financings. His practice also encompasses complex investment structuring involving joint ventures, preferred equity, participations, syndications, co-investments, parallel vehicles, private REITs, and discretionary funds. In addition to his practice, Mr. Guggenheim serves as a lecturer in law at USC’s Gould School of Law, where he teaches the real estate joint ventures course and regularly guest lectures for the real estate transactions and finance course. He also frequently speaks about commercial real estate topics in webinars and at conferences and contributes articles to real estate and legal publications.

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Chris W. Smith
Of Counsel
Mintz

Mr. Smith has a multifaceted commercial real estate practice that encompasses a broad spectrum of acquisitions, dispositions, financings, restructurings, and leasing. He draws on his extensive in-house experience to counsel clients on all aspects of real estate matters related to multifamily, office, hotel, and retail properties. Prior to joining the firm, Mr. Smiht was general counsel of a New York City–based real estate development and investment company. His role included advising on legal issues related to property acquisitions and sales across the U.S. and custom multi-partner equity partnerships that often incorporated complex 1031 exchange structuring and tenancy-in-common arrangements. He also handled development financings, refinancings, debt restructurings, and equity recapitalizations.

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Michael D. Soejoto
Member
Mintz

Mr. Soejoto’s practice focuses on commercial real estate joint ventures, funds and other partnerships and strategic relationships. He has extensive experience handling the federal income tax aspects of real estate transactions and real estate–related investments. Mr. Soejoto represents private equity and hedge funds, real estate investment trusts (REITs), private and institutional investors, and owners and developers of commercial real estate properties. He also advises clients on California real property and documentary transfer tax issues.

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Description

A promote is a form of incentive or profit-sharing mechanism that is often used in real estate JVs to incentivize and compensate the operating partner for creating value in the form of profit generation. Promote mechanics are built into the distribution waterfall provisions of a JV agreement, and these provisions dictate which of the parties will receive cash returns on their investment and the relative priority and timing of the distribution of such returns.

A promote is often not paid until a capital event occurs that generates net proceeds, usually from a sale or refinancing of the property. Therefore, an operating partner is typically not able to capitalize on its promote unless and until the property is sold or refinanced and the net proceeds are sufficient to achieve the hurdle return.

To address this timing issue, promote crystallization or freezing the promote may be used in real estate JVs to allow the operating partner to receive or realize its promote without a capital event (for example, by increasing the operating partner's capital interest or making a cash payment to the operating partner, or a combination of the two, and revising the distribution waterfall so that all subsequent distributions are based on capital interests). If a JV plans to hold multiple assets, the parties must further decide whether to crystallize the promote on an asset-by-asset basis and whether a clawback mechanism is needed.

Listen as our authoritative panel examines the use of the promote crystallization structure and key considerations when drafting the promote mechanics provisions of a real estate JV agreement.

Outline

  1. Overview of the promote crystallization concept in JVs
  2. Typical promote crystallization structure
  3. Typical promote crystallization mechanics
    1. Determining the crystallization trigger and unrealized promote
    2. Promote redemption and buyout options
    3. Liquidity considerations
  4. Benefits and drawbacks of promote crystallization
  5. Tax considerations
  6. Practical pointers and key takeaways

Benefits

The panel will address these and other key issues:

  • What is promote crystallization and how does it work within the context of a JV's distribution waterfall provisions?
  • When should parties consider including promote crystallization provisions in a JV agreement?
  • What is the typical promote structure?
  • What are the mechanics of a promote crystallization?