Examining liquidity in non-controlling joint venture partnership interests at the asset level

Compared to traditional investment options, such as stocks and bonds, direct real estate investments are illiquid. This problem is magnified in joint venture partnerships. Non-managing member partnership interest holders typically do not have a way to dispose of their interest (thereby unlocking any residual value) prior to a capital event at the property level. Even with a forced sale mechanism included in the joint venture agreement (buy/sell agreement, ROFO, etc.), the non-managing member partnership interest holder is disincentived to exercise the option without the expertise to manage the investment. Depending on the long term strategy (buy/hold/sell) of the managing member, the non-managing member partnership interest could remain virtually illiquid over the entire holding period. The thesis will answer whether or not the non-managing member partnership interests can be transferred more efficiently (and, therefore, more fully valued prior to capital event) via specialized investment platform and, if so, what changes will need to be adopted in the market and within partnership agreements to facilitate such transfers. Specifically, this thesis will examine the feasibility of creating and implementing a new, market-creating enterprise that purchases and trades non-managing member partnership interests. This topic is especially relevant today given the recent turmoil in the private real estate investment market and the prevalence of cash-strapped non-managing member partnership interest investors (institutions as well as individuals) seeking to unlock their wealth, as well as managing members desiring to preserve their ownership in real estate they believe will rebound with the market.

Department dc:contributor.department

Massachusetts Institute of Technology. Center for Real Estate. Program in Real Estate Development.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2012

Author dc:creator

• DePucchio, Matthew (Matthew Vincent)

Advisor dc:contributor.advisor

• John Kennedy.

• Center for Real Estate. Program in Real Estate Development.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/77120

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/77120