News
CHECKS & BALANCES
March 14, 2012
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| There’s been a tremendous uptick in audits in real estate JVs due to financial stress and trouble in some partnerships, says advisory firm David Landau & Associates CEO David Landau (pictured) and senior managing director Philip Ramacca. You know, like that managing partner who decides he needs to find additional sources of cash, then starts taking money from assets in the portfolio that are doing well to finance those that aren’t so hot. With cash flow covering shortfalls, he’s likely in serious violation of the management agreement—taking money as a short-term loan without the ability to repay, especially if this economic strife continues. Ultimately, a property that was never underperforming can suffer. |
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| What Phil (pictured) and David are seeing among clients: More non-managing partners conducting proactive audits to ensure that funds from their investments are not being used for struggling assets. Their suggestions on avoiding partnership problems: make sure there’s a provision to allow non-managing partners to look at the books; make sure there’s no co-mingling of funds (that's the middle-school dance proviso), ensuring cleaner finances for each building; and make sure the managing partner is following the minimum level of reporting. Good negotiating from non-managing partners and good monitoring from asset managers is critical to ensure that all parties are in compliance with managing agreements. |
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| What we think this means: don't have your head in a hole, like Chubby (Bisnow national editor's dog, snapped yesterday). While the duo isn’t busy finding partnership blips, you can find David training his sons in hockey (even though he only picked up skating months ago). Philip prefers the green to ice and enjoys time at Long Island’s Calverton Links. |
