Coming to Terms
By: Alison Crowley
What better way to understand the intricacies of a joint venture agreement than to simulate a negotiation between a developer and sponsor entering into one? MIT Center for Real Estate students taking Tod McGrath’s Real Estate Ventures course did just that in New York City on Friday, Oct. 24th in collaboration with partners from the Columbia Business School, Columbia Law School, and the Columbia Graduate School of Architecture, Planning and Preservation. The Ventures course, which takes students through the myriad agreements that must be drafted, negotiated, and signed throughout the development process, invited MBA, Law, and MSRED students from Columbia to participate in a day-long workshop on the JV agreement. Students were assigned to teams representing either the developer or the sponsor, and spent several hours on Friday morning working alongside attorneys to determine which aspects of the agreement would need to be negotiated later in the day.
After a morning brainstorming how to approach difficult conversations such as the profit split between developer and sponsor, the degree of responsibility each party held toward cost overruns, and how major decisions would be decided between the two groups, the negotiation began. Four students from each team assembled across from one another in front of a panel of expert judges from the real estate community to pinpoint major failures in the agreement’s design and work toward an equitable conclusion. Tensions ran high when the conversation turned toward profits; would the sponsor receive 90 percent of all the revenues up until a certain return had been achieved, and if so, what was that benchmark? Could the sponsor make major decisions regarding the project’s direction without approval from the developer? These questions and more were addressed, and students received live feedback from the panel of judges.
At day’s end, MIT and Columbia University students learned valuable lessons in close reading of contract agreements and how to approach sensitive issues with professionalism and, when needed, dogged persistence. Tod McGrath and the Center for Real Estate will take the JV negotiation event to San Francisco in January and look forward to returning to New York again next fall.