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Peter Fisch and Ruobing Chen Discuss Promote Crystallization in Real Estate Joint Ventures in Thomson Reuters Practical Law
March 30, 2023
Real estate partner Peter Fisch and associate Ruobing Chen authored a practice note for Thomson Reuters Practical Law, “Promote Crystallization in Real Estate Joint Ventures,” which focuses on the benefits and mechanics of promote crystallization provisions, including drafting and negotiating considerations.
A promote, also known as carried interest, is often used in real estate joint ventures to incentivize and compensate the operating partner for creating value in a certain project. However, the operating partner often does not control the timing of the payment of the promote, which often takes place following a capital event, such as a sale or refinancing of the property. Therefore, real estate JVs increasingly use promote crystallization (or freezing the promote), which “allows the operating partner to receive or realize its promote without a capital event,” as the authors discuss.