December 6, 2022
Balance can be valuable in forming a sustainable real estate entity that continues to act in the best interest of the practice. That balance often diminishes when groups begin to stray from equal ownership among partners, and it can have repercussions as those imbalances start to amplify with time.
The common issue with unequal ownership is the misalignment of interests that often arises. When ownership positions vary, their individual outcomes differ, and choices are made in favor of decisions that benefit their individual positions in the real estate.
We’ve outlined below just a few of the common contentious issues that often arise, and the typical preferences that ensue based on varying individual ownership positions:
Inequal Ownership Can Amplify Over Time
Groups with unequal ownership frequently see their equity positions continue to diverge further over time. As the shareholders with greater ownership positions reach seniority, the buyouts and buy-ins can become increasingly difficult and assured sustainability becomes challenging. This is demonstrated using an example where one partner invests $200,000 while another invests $600,000. We see that over a 10-year term, the difference of $400,000 has more than tripled.