Yes, we’ve done this several times for our clients. This is a great strategy for the management team to increase its ownership in the new property.
Here’s what you need to do:
1. First, you need to take a vote of your members. If a majority of interests agree with the exchange, you can do it.
2. If some investors don’t want to do the exchange, you will need to buy them out using the capital transaction waterfall as if a sale had occurred on the relinquished property. This can happen either before or after the acquisition of the new property, depending on the timing of acquisition of the replacement property.
3. You can syndicate the replacement property to raise additional capital to buy out non-participating members and/or to raise additional capital that may be needed for the replacement property.
4. The Class A members who want to stay in the deal can elect to convert all or part of their cash distributions from the relinquished property into Class A interests in the replacement property.
5. The Class B members get to decide whether to cash out all or part of their Class B distributions from the sale of the relinquished property, or to roll them over into Class A Interests (as if they were a cash investment)in the replacement property.
6. Management still gets its Class B carve-out in the replacement property. This is a great strategy to increase the management team’s ownership in the replacement property.
Documentation needed:
1. The same entity that owns the relinquished property will acquire the replacement property, so the names can get kind of weird here.
2. We’ll need to draft a First Amended and Restated Operating Agreement for the title-holding entity that takes effect on acquisition of the replacement property.
3. If you need to raise additional capital, we’ll need to create a new Private Placement Memorandum and Subscription Agreement (and securities notice filings) for the replacement property.
4. Class A members who want to stay in the replacement property will fill out the subscription agreement for the new syndicate and provide a “re-direction form” transferring their desired investment from the relinquished property into the replacement property.
We’re happy to help you with this. If you still have questions, please schedule a call with one of our legal team at www.SyndicationAttorneys.com.
