Recapitalization of office park joint venture

American Real Estate Partners, LLC

Arnold & Porter LLP represented the sponsor of an existing joint venture in a recapitalization that involved a new (second) equity partner, refinancing the existing mortgage loan indebtedness with a new lender, and issuing a carried interest to the prior lender.

This transaction involved an office park in North Carolina with 21 separate parcels, nine office/flex buildings and twelve undeveloped tracts. Our client, the sponsor and manager of the properties, acquired the office park in a joint venture with Equity Investor #1 in 2007. The acquisition was financed in part with a first mortgage loan from Lender #1.

Due to the market swoon, there was no possibility of refinancing the entire original mortgage loan when it recently matured. Thus, the parties worked out a recapitalization that included the following elements:

  • Payoff of the original mortgage loan at a discount, with the issuance to Lender #1 of a carried interest in the event that the restructured venture is very successful;
  • Obtaining a new mortgage loan (at a lower principal amount) from new Lender #2;
  • Bringing in a new Equity Investor #2 to infuse additional equity; and
  • Modifying the original joint venture with Equity Investor #1 to accommodate the new deal.

The transaction required the simultaneous negotiation of three separate joint venture agreements, a complete set of new loan documents, and real estate transfer and related matters for 21 separate parcels.

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