Is there a way to enhance security of Minority Equity Position???

[Michael Wagner]

Hoping someone can help me with this? I am in the process of putting together a JV and my needs from the investor are such that only a minority equity stake position (with preferred returns) is justified. I have several investors considering the deal and the feedback is that they are happy with the returns offered but being a minority stake holder is too risky. They fear that I as majority stake holder will have too much power and they would have no voice on things like when dividends are issued, myself voting to start receiving a salary, etc.

Cross-collateralizing other properties is not an option because although I have significant equity, all of my investments are leverage at 40-60 LTV so they would be pushed into a second position which doesn't accomplish much in this instance. Plus, if I were to go that route, I would just pull cash and fund the entire deal myself. I rather not go that route.

Instead, I am wondering if there is a way to address their concerns. My initial thought is to create an iron-clad operating agreement prohibiting me from doing any of the things that they fear without their consent. In essence, despite being a minority equity position, we would have equal voting power. The trouble with this is that it results in a situation where a disagreement would be an automatic stalemate and therefore require litigation....and at that point we both lose!!!

Any suggestions would be awesome!