A sage friend of mine in the real estate business said to me recently, “Partnerships never survive the second generation.” I just got off the telephone with a client who is in this very circumstance: he is negotiating with the son of his father’s partner to fairly distribute a number of disparate real estate assets between the two families.
Their proposed solution is elegant. A binding agreement is signed whereby:
- Party 1, with the assistance of its attorneys and experts, analyzes and values each property;
- Party 1 then sets a price for each property at which Party 1 is willing to buy or sell;
- Party 2, with the assistance of its attorneys and experts, must then decide to buy or sell each property at the set price;
- Based on Party 2’s decision, Party 1 must buy or sell.
I like this proposal because everyone is well-informed and it forces everyone into a reasonable position. There is no debt on the properties, so theoretically either side could buy all of the properties with the assumption of a modest amount of debt (50% Loan-to-Value).
This proposal seems vastly superior to, “you pick an appraiser, I pick an appraiser, the appraisers pick a third appraiser, then we litigate until both sides run out of money.”