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Investment Property Operating Agreement

The purpose of an LLC enterprise agreement is to define the structure of your LLC and resolve issues before they arise. In the best case, an LLC enterprise agreement gives you the opportunity to think about a large number of scenarios related to the management and ownership of real estate included in the LLC. Holding real estate in an LLC can also complicate financing. Many traditional lenders do not finance or mortgage real estate owned by a commercial entity and force investors to look elsewhere for alternative financing. Most financing alternatives require higher interest rates, typically for shorter maturities. Real estate syndications are typically structured in such a way that investors get a “preferred return” on their investment (often in the range of 5-10%), and then receive a share of the remaining cash flow and profits (typically 50-80%), with the sponsoring real estate company receiving the balance (its “promotion” share). The provision in the corporate agreement detailing this “cascade” of distributions describes the order of payments, whether and how unpaid payments are ultimately refunded, and whether “tax payments” may be required when the company`s taxable income results in limited member tax liabilities. Real estate LLCs typically include “private placements” of securities (LLC units) and U.S. securities laws strictly control the portability of securities that have not been publicly registered with the SEC. In addition, LLC`s corporate agreement often provides for “pre-emptive rights” – the right of the company or other members to acquire any shares a member wishes to sell. These provisions give the LLC and its members “first dibs” to further participate in the project when another member wishes to sell or transfer its interest.

Passive investors usually need to operate the LLC manager with active property management. But if it`s clear that the work is really mismanaged, LLC members want certain means that can be used to remove the manager. At least cases of gross negligence or misconduct must be clearly reasons for this distance; Most corporate agreements also allow a manager to be removed on the voice of a “super majority” of LLC members, usually those who represent 70-80% of members` voting rights. Sometimes investors do not control all of the voting rights of an LLC, so it is important to ensure that a vote offers the desired power in such cases. The corporate agreement of a real estate LLC generally provides that the manager is not liable for errors or errors in judgment that he has made in good faith with respect to limited members; This is similar to the “Business Judgement” rule, which gives a company`s directors similar leeway.. . .