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Structure
Example
Operating
Agreement Outline
for American Commerce Center
Purpose of the
Agreement
The purpose of the
agreement will be to detail the terms and conditions of the
company that will develop a small bay business park and service
center space for the trades and skilled small business.
Ownership
The ownership is
a Limited Liability Company (LLC) to be formed.
Managing General
Partner
The Managing General
Partner will be the development partner.
Contribution -
Financial Partner
The financial partner
agrees to contribute the cash required to capitalize the partnership
and contribute the cash necessary to develop the property. This
amount could be equal the cost of the site. The cash provided
by the financial partner will be reimbursed to the financial
partner out of the cash flow of the property.
The financial partner
will receive 100% of the annual net cash flow and net sale proceeds
until all the capital is returned (FIFO). Once the capital is
returned, the financial partner will receive 50% of the annual
net cash flow and net sale proceeds. The financial partner will
receive 50% of the annual tax benefits. The financial partner
agrees to guarantee the debt.
Contribution -
Development Partner
The development partner
agrees to contribute his time, energy, and expertise to accomplish
a variety of tasks such as:
|
A.
|
Site
selection, |
| B. |
contract
for the sale of the site, |
| C. |
obtain
the construction and permanent funds, |
| D. |
compose
various leasing, management, and financial reports, |
| E. |
coordinate activities with third parties and other professionals
such as
engineers, architects and contractors, |
| F. |
obtain the necessary approvals and permits from the appropriate
municipality or governing authority, |
| G. |
manage
the day-to-day operations of the development until the punch
list is completed and the Certificate of Occupancy is issued
by the controlling municipality, |
| H. |
permit,
contract and complete the tenant improvements, and |
| I. |
manage
the day-to-day operations of leasing and property management.
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The development
partner's net cash flow is subordinated to the cash required
to capitalize the development. Once all the capital (equity)
is returned to the financial partner, the development partner
will receive 50% of the annual net cash flow and net sale proceeds.
The development partner does not make capital contributions
unless (or until) he receives his portion of the annual cash
flow. The development partner will receive 50% of the annual
tax benefits and the development partner agrees to guarantee
the debt.
Exchange
The development
partner contributes various development fees in exchange for
the financial partner contributing any preferred rate of return
on equity. The development partner does make a per diem.
Cash
Flow
The cash
flow generated by the rent on the occupied property has the
following priority: (1) to pay expenses including debt service,
(2) to fund a reserve for future maintenance and repairs, (3)
to fund the financial partner for the cash contribution, and
(4) once all the capital is returned to the financial partner,
a distribution to the partners based on a percent of ownership.
Reserves
Cost in
excess of the construction budget or negative cash flow from
operations will be taken from the construction budget contingency
or the balance in the operating reserve. The financial partner
will be required to contribute funds if the development suffers
a financial reversal.
Exit
Strategy
It is agreed
and understood that the purpose of this LLC is to develop, occupy,
and hold this asset for the long term.
Mediation
The use
of the courts should be avoided. In the event of a claim or
a controversy arising out of this agreement, we mutually agree
to use mediation or arbitration to resolve any and all differences.
The parties hereto agree to mediation or binding arbitration
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association.
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