Commercial real estate partnerships can be perplexing but can bring enormous opportunities when done correctly. Will going solo in commercial real estate deals make you a big shot? Think again. Your lone ranger act won’t cut it on the big projects. To swim with the sharks, you need a crew. Forming a commercial real estate partnership allows investors to take on larger, more complex real estate projects by pooling resources and expertise.
However, properly structuring these partnerships requires expertise. Working with an experienced commercial real estate partnership lawyer is highly recommended when establishing a new partnership. The lawyer can ensure you form the optimal entity, craft partnership agreements that protect all parties, and handle the myriad legal details.
Types of Partnerships and Structures
When entering a commercial real estate partnership, you must determine the structure you want to create. Common options include:
- LLC (Limited Liability Company)
- LLP (Limited Liability Partnership)
- S-Corp
Each entity has different legal and tax implications, liability protection, and operating procedures. LLCs have become famous for real estate partnerships, allowing for a more flexible member-managed set-up. You’ll also need to decide between an active partnership, where all partners participate equally in management and decision-making, or a passive partnership with designated “limited” and “general” partners.
Your commercial real estate partnership lawyer can guide you in selecting the ideal structure to meet your particular partnership’s needs and goals. The right entity formation lays a crucial foundation for the partnership.
Defining Roles and Responsibilities
To avoid conflicts down the road, you must clearly outline each partner’s role and decision-making authority upfront. In most passive partnerships, you’ll have:
- General Partner: Manages day-to-day operations and leads key decision making
- Limited Partners: Provide capital and share profits but don’t participate in management
However, all partners share equitable ownership stakes, votes, and management duties in active partnerships. Regardless of structure, partners should consult experienced real estate attorneys to ensure responsibilities and equity splits are spelled out in detailed formal partnership agreements.
Your commercial real estate partnership lawyer will ensure the agreements reflect your intentions for each partner’s responsibilities and prevent misunderstandings. Formalized structures protect all parties involved.
The Pros and Cons
Pros of real estate partnerships include:
- Pooling capital for bigger investments
- Spreading risks across multiple partners
- Combining complementary skill sets
Potential cons:
- Disputes over equity splits or decision-making authority
- Lack of liquidity compared to REITs
- Liability if partners default financially
Careful planning and guidance from a partnership lawyer minimize these risks.
Expert Legal Guidance Is Crucial
While partnerships allow for larger investments, complex legal and financial considerations require professional guidance. An experienced commercial real estate partnership lawyer can help you:
- Select and form the optimal partnership entity
- Draft comprehensive operating and partnership agreements
- Handle state-specific regulations and tax laws
- Ensure compliance with all legal formalities
Having these complex technicalities handled by experts lets you focus on real estate investment.
Conclusion
A commercial real estate partnership can greatly enhance investing capabilities with proper planning and guidance from real estate attorneys. Just be sure to define roles clearly and tackle the legal complexities upfront. This allows you to share risks and upsides in a mutually beneficial way. Don’t dive in alone – partner with an experienced lawyer to navigate the intricate legal waters.
