Partner owning Real Estate

[twodocs]

3 ‘partners’ own 3 imaging centers. We also contract with multiple hospitals. 1 partner plans to own our main building and land valued at 2.9M. Currently owned by former partners retired. Has a suggested agreement that we all pay $25/ft to lease it from him with 3% increase per year. Wants it closed by year end.

Who do I need to talk with about this?

[Kamban]

Bad idea. All 3 partners should also own the land, not just one person.

Will lead to friction later.

[needlejockey]

Dont like it. Partner = ownership, not lessee

[Eye3md]

Yeah bad idea. Agree with the others. When one partner has a situation like this, it can lead to animosity with the others.

[Tim]

Not sure if the 1 partner has been completely open. Do you have the option of buying 1/3 at the same price?
Profit, tax motives and terms are market driven arms length negotiations. Built in conflict.

[PWMDMD]

In my first partnership, we owned 4 buildings, and every partner owned an equal share. All four buildings were separate LLCs. New partners essentially made two transactions - one for the partnership and one for the real estate. That seemed like a true and equitable partnership to me.

One of the things that can kill a partnership is when one partner starts pulling (only) in their direction. There really needs to be a "what's good for all is what's good for me" attitude.

[jacoavlu]

3 ‘partners’ own 3 imaging centers. We also contract with multiple hospitals. 1 partner plans to own our main building and land valued at 2.9M. Currently owned by former partners retired. Has a suggested agreement that we all pay $25/ft to lease it from him with 3% increase per year. Wants it closed by year end.

Who do I need to talk with about this?

You need to talk to your other 2 "partners"

Lots of unknown here. Retirees probably should never have been allowed to maintain ownership post retirement. That said what's the current arrangement? Is the proposed lease rate different than what's happening already? In the hypothetical idealized scenario where you're all equal owners are you prepared to write a $1M check / take a $1M loan?

[twodocs]

Unfortunately there are a lot of unknowns. Original partners and CEO were misleading, was 1st job out of training. Other new partner made same assumptions as me, but knew even less.

Now it is the 2 of us 7 years out of training and the original partner who is nearing retirement.

Other partner my age isn’t interested or knowledgeable about real-estate.

Elder partner is making all moves to secure loan and buyout other retired partners without including us. He had his own appraisal and is basing our lease on offers from outside firms. Not the best situation.

Lease rates (which I don’t get any of now) will go down in the short term, and increase in future. It is triple net lease. Building needs some roof repair they have been putting off, he’s trying to pass that to ‘us.’

[jacoavlu]

Unfortunately there are a lot of unknowns. Original partners and CEO were misleading, was 1st job out of training. Other new partner made same assumptions as me, but knew even less.

Now it is the 2 of us 7 years out of training and the original partner who is nearing retirement.

Other partner my age isn’t interested or knowledgeable about real-estate.

Elder partner is making all moves to secure loan and buyout other retired partners without including us. He had his own appraisal and is basing our lease on offers from outside firms. Not the best situation.

Lease rates (which I don’t get any of now) will go down in the short term, and increase in future. It is triple net lease. Building needs some roof repair they have been putting off, he’s trying to pass that to ‘us.’

I’m curious, what do you see as your realistic options here?

[twodocs]

Discuss with them what our issues are and move together as a group.

Tread while making other plans. This could be semi-to long term, we make enough I only need a few more years.

Bail now.

[jacoavlu]

Discuss with them what our issues are and move together as a group.

Tread while making other plans. This could be semi-to long term, we make enough I only need a few more years.

Bail now.

Are you open to writing a $1M or $1.5M check if older doc agrees? And what if third doc doesn’t want to?

are you also open to writing another check when older doc retires, to buy him out of the building?

Can you block the deal if it came to that? Or would you need third doc to also be willing to take a stand with you?

[PWMDMD]

Lease rates (which I don’t get any of now) will go down in the short term, and increase in future. It is triple net lease. Building needs some roof repair they have been putting off, he’s trying to pass that to ‘us.’

Wow! His building - his roof! The only upside to not owning the building would be watching the owning partner walk in and say the building needs $40K in work and you being able to say, "Wow! That really sucks...for YOU but it's not my problem!"

Obviously, I don't know the ins and outs of your partnership and there's more to it than this issue but from what you've presented the senior partner seems tone-deaf to the idea of a partnership or at least to what his partners' idea of the partnership should be. I would sit down with all the partners and just be honest about your concerns. The fact you're here asking questions suggests you are uneasy with what's happening. If he is unwilling and to include you in the real estate and you still want to be a part of this "partnership" I would want:

1. An amendment to your contract that explicitly states that the real estate costs, including maintenance/repair, taxes, insurance, are entirely the responsibility of the senior partner, no funds from the partnership can be directly used to cover these costs.

2. The building needs to be owned by a separate LLC so there is a very clear delineation as far as what money is paying for those costs. Not to mention the potential liability issues.

3. There needs to be a written lease for as long as possible to set limits on what can be charged for rent so the senior partner doesn't try and jack the rent.

4. I want to know what happens once the senior partner retires and has no other skin in the partnership game? This is typically when you see people jack rents and do shady things since they don't have to see you every day.

This of course all speaks to my earlier comment about partners trying to "get theirs" at the expense of their other partners. It would never occur to me that I'd buy the building for my practice without my current or past partners.

[PWMDMD]

Let me share from my own experience as well to show how bad it can go. My first partnership had 20 partners and four locations when I joined. It was originally started b two people and one location was entirely owned by one of the two founding partners. It was an ok building but it was right on Main Street and since the practice was 30 years old at that point a landmark was used by many when giving directions and no one wanted to move the practice. The retiring partner somehow convinced the other 5 or 6 partners at the time (by threatening to sell to someone else who wanted to knock it down to build a strip mall) to buy his building for well above market value and to self-finance the deal at an interest rate that was twice the going interest rate at the time. The contract was signed and the retiring partner made out like a bandit at the expense of his former partners.

Twenty years later I became a partner and by that time it clearly stated in our contracts that only current partners could own the real estate and there was a very precise and fair method for both the buying and selling of real estate.

[twodocs]

Yep, spend the money or sign the loan just like all the imaging equipment my name is on.

It definitely isn’t equal as set up now.

Would be easier to walk if I don’t get involved, which is maybe worth something.

Crystal ball is hazy and all…