Item 1.01. Entry into a Material Definitive Agreement.
On April 26, 2022, TM BTR Venture LLC, a Delaware limited liability company (“TM Member”) and a wholly-owned subsidiary of Taylor Morrison Home Corporation (the “Company”), and VP Moondance Holdings LLC, a Delaware limited liability company (“Värde Member”) and an affiliate of Värde Partners, Inc., established a joint venture (the “Venture”) for the purpose of acquiring undeveloped land on which to construct and operate horizontal apartment units (“BTR Projects”) in support of the Company’s Build-to-Rent operations. The terms of the Venture are set forth in that certain Limited Liability Company Agreement of TMVP BTR Venture, LLC dated as of April 26, 2022 (the “LLC Agreement”) entered into between TM Member and Värde Member. The LLC Agreement provides for an aggregate combined commitment of $850,000,000 from TM Member and Värde Member, which commitment will be invested in BTR Projects in tranches of $450,000,000 and $400,000,000, respectively. Committed capital will be funded 60% by Värde Member and 40% by TM Member on a parity basis. The investment period for both tranches may extend out until the four year anniversary of the date when the Venture acquires the first BTR Project. During the investment period, the Venture will be an exclusive vehicle to acquire BTR Projects that meet the Venture’s investment guidelines, which outline geographic markets, minimum target returns, minimum unit counts, available financing and other criteria. For each BTR Project identified by TM Member that meets these investment guidelines, TM Member has agreed to offer Värde Member the opportunity to have the Venture acquire and develop the BTR Project. If Värde Member determines not to pursue or approve such acquisition, TM Member or its affiliates would be permitted to acquire the property outside the Venture. In addition, TM Member will also be required to offer Värde Member the opportunity to have the Venture acquire and develop BTR Projects that meet some (but not all) investment guidelines if such BTR Project is located within 2.5 miles of an existing BTR Project owned by the Venture.
TM Member will serve as managing member of the Venture and will be responsible for day-to-day operations of the Venture and management of its properties, subject to obtaining Värde Member’s approval of major decisions (including, without limitation, acquisition of properties, financing and affiliated transactions). In the event of a material impasse with respect to a BTR Project, the LLC Agreement provides a mechanism pursuant to which such BTR Project may be sold after an 18-month lockout period to any of TM Member, Värde Member or a third-party purchaser.
In addition to TM Member’s role as managing member, after a BTR Project is acquired, an affiliate of the Company will also manage the construction of the BTR Project (each, a “TM Builder”).
In consideration for its management services, TM Member will be entitled to receive carried interest from distributable cash after Värde Member has recouped its invested capital and achieved certain hurdles related to its internal rate of return. Carried interest for each tranche will be calculated separately and the percentage of carried interest will vary depending on the internal rate of return achieved by Värde Member. Each TM Builder will be paid construction management fees in consideration for the construction management services provided by such TM Builder. TM Builder will be responsible for a limited category of cost overruns, but such liability will be capped at a percentage of its construction management fee. Currently, TM Member and Värde Member intend for a third-party unaffiliated property manager to manage the BTR Projects after completion.
Värde Member will have the right to remove and replace TM Member as managing member of the Venture if TM Member breaches certain obligations or certain events occur. Likewise, Värde Member will have the right to cause the Venture to remove and replace TM Builder as construction manager of a BTR Project if TM Builder breaches certain obligations or certain events occur.
The LLC Agreement contains restrictions on a party’s right to transfer its interest in the Venture without the approval of the other party. After the five year anniversary of the date on which the first BTR Project is acquired, either TM Member or Värde Member may elect to force a liquidation of the Venture, in which case the non-triggering member would have the first right to acquire the portfolio of BTR Projects then owned by the Venture.
