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Blind Pool Fund V. Pledge Fund

Real estate Sponsors raising capital from Investors have multiple ways to structure the investment. Sponsors with strong track records commonly raise funds in which Investors commit to funding capital as and when determined by the Sponsor and the Sponsor has flexibility within pre-negotiated parameters to invest without approval from Investors. Such funds are known as Blind Pool Funds. Sponsors without strong track records commonly raise funds in which Investors are given first look at investment opportunities located within a pre-negotiated geographic area and of a pre-negotiated asset class (without set parameters) and Investors elect on a deal-by-deal basis whether to invest in a given opportunity. Such funds are known as Pledge Funds. Below is a chart that briefly summarizes some of the characteristics of these types of funds. 

                                                        BLIND POOL FUND

PLEDGE FUND

Types of Investors

Sponsors can attract institutional Investors who are either not equipped or do not wish to review investments on a deal-bydeal basis and prefer to rely on the expertise of the Sponsor and the pre-set parameters.

Sponsors are more likely to attract non-institutional Investors who prefer overseeing each investment decision. Because of the frequent communication between Sponsors and Investors, Sponsors can build a strong relationship with new Investors. Sponsors can use a Pledge Fund as a springboard to launching a Blind Pool Fund.

Capital

Sponsors have certainty as to how much Investor capital is available for each transaction and depending on the size of the fund may not need joint venture partners.

Sponsors do not have certainty as to how much Investor capital is available for any given transaction and are frequently in need of additional (possibly more expensive) capital (e.g., JV partners). The uncertainty of how much Investor capital is available, delays caused by Investors’ review and decision period and the need for JV partners make it difficult for Sponsors to bid on time-sensitive deals.

Fees,

Expenses and

Promotes

Investors pay a management fee during the investment and exit periods (typically, 1.5% of committed capital per year). 

Investors usually pay fixed annual fee (based on pledged capital) for the right to invest on a deal-by-deal basis. 

Timing

All expenses (e.g., legal, due diligence, organizational, travel etc.) are passed on to Investors.

Setup costs and broken deal costs incurred prior to

Investors opting in are usually borne solely by Sponsors. Once Investors opt in those costs are allocated among the Investors that elected to participate in the transaction.

© 2018 Schiff Hardin LLP

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About this Author

William A. Goldman, schiff hardin, associate, New York, Institutional Investors, commercial real estate, financing transactions
Associate

Will works primarily in commercial real estate, handling a wide variety of transactions. He represents buyers, sellers, borrowers, lenders, landlords and tenants. His acquisition and sale experience includes office, multifamily and retail buildings throughout the country. He also focuses on financing transactions, including acquisition financing, refinancing, construction financing and mezzanine financing.

Will excels at providing first-rate legal services while keeping each client’s specific set of business goals in mind. Never losing sight of...

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Partner

Marina Rabinovich counsels investors, owners, landlords, and tenants in all aspects of their real estate needs. Her pragmatic approach towards the completion of sophisticated transactions gives clients simple, yet creative, solutions to any issues that may arise. Her long-time clients know she is passionate about fighting for what is important and gets deals done.

Marina brings her no-nonsense approach to her practice. She is a strong advocate for her clients, and brings years of successful representation to each real estate deal. She uses her market knowledge to get her clients results.

Experience

  • Marina represents equity investors and operating partners on purchases, sales and financings of office properties, multi-family properties, shopping centers and loan portfolios.
  • She advises equity investors and operating partners in joint venture arrangements, including transactions with a “cross-promote” structure and preferred equity components.
  • When Islamic financing is involved, Marina works under these guidelines toward favorable solutions for her clients.
  • Marina also represents landlords and tenants in office, shopping center and retail leases, including flagship and headquarters locations.
  • Marina represents borrowers in defeasance transactions and credit line arrangements secured by subscription agreements, loan portfolios and other non-real property collateral.
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