Building a Private Investment Fund and Breaking Ground on Its First Investment

Shields Legal Assists Long-Time Client in Forming a Private Fund

Introduction

Shields Legal helped an established client form a private fund so the client could raise funds for a commercial investment. After formation, Shields drafted, negotiated, and closed the new fund’s first financing transaction – a hotel construction project.

Problem

A long-time client of Shields identified a business opportunity in forming a fund to engage in lending transactions. The client had ambitious plans and needed leadership and advice on fund formation, subscription financing, and financing transactions. The fund formation involved discussions and negotiations with potential partners to structure fees, returns, and interests. Simultaneously, the subscription financing required reaching out to potential lenders, negotiating term sheets, and closing a subscription financing deal. The initial financing transaction posed myriad complex problems, including preparation of an initial document set for future financing transactions, negotiating with local authorities, negotiating with a PACE lender, and structuring both senior and mezzanine facilities.

Solution

Even before any documents or terms existed, Shields Legal quickly ascertained that a fund formation, with a limited partnership structure, was the most appropriate method to finance the client’s lending transactions. We prepared fund formation documentation, including partnership agreements and subscription booklet, then worked with the client’s fund administrator to set up back-office functions for the new fund.

Next, Shields worked with our client to negotiate subscription financing for the fund with a well-regarded regional bank. This helped to shore up any gaps with funding from the fund’s capital commitments. Shields Legal negotiated the transaction with the bank’s counsel and then oversaw the process from the first draft of the term sheet through closing of the deal.

With the fund formation complete and the subscription financing in place, the client selected a potential lending opportunity for construction of a hotel. Shields assisted the client in negotiating the term sheet, which presented unique challenges given it was the fund’s first transaction and involved fluid underwriting. The construction was also financed with a subordinated loan from a municipality and PACE lender. The loan had both senior and mezzanine components. Shields negotiated with the various parties and navigated the client to successfully close its first deal.

Conclusion

As a result of Shields Legal’s efforts, our client was able to raise the funds necessary to finance a hotel construction project utilizing a private fund structure. Shields worked side by side with our client from fund formation through closing of the hotel construction financing. Two birds. One stone. And one new hotel under construction.