A club deal, several investors coming together for a single asset without the apparatus of a fund, is one of the most common structures in European real assets and one of the most frequently underdocumented. The economics are usually agreed quickly because they are simple. The governance is usually agreed slowly or not at all, and the governance is what decides how the investment ends.
Why investors choose a club over a fund
A club deal offers what a fund cannot: the investor sees the specific asset, decides on it individually, and is not paying for a blind pool or a management fee on undrawn commitments. For an investor with the capacity to assess assets, that is a materially better proposition. The cost is that everything a fund’s documentation would have settled in advance has to be settled here, deal by deal.
Control is the first question
Who decides. Day-to-day asset management decisions have to sit with one party, usually the sponsor or operating partner, or nothing happens. Major decisions, sale, refinancing, capital calls, change of business plan, belong to the investors, by a defined majority. The list of what counts as major has to be written down, because the arguments in a club deal are almost always about whether a particular decision required consent.
In a club deal the economics are agreed in an afternoon and the governance is agreed reluctantly. It is always the governance that determines what the investment is worth.
The money terms beyond the split
Beyond who owns what, the terms that matter are the waterfall, the preferred return, the promote and when it is paid, and what happens if further capital is needed. That last one is the sharpest: if the asset needs money and one investor will not or cannot fund, the mechanism, dilution, a loan from the funding party at a stated rate, or something else, has to be agreed before it is needed. A club deal with no failure-to-fund mechanism has a hole where its most likely crisis will occur.
Deadlock and exit
Two investors with equal stakes and no deadlock mechanism is a structure that can freeze permanently. The standard answers, a buy-sell provision, a drag and tag arrangement, an agreed sale date, all work, and any of them is better than none. Equally important is the exit horizon: investors who agree the asset will be sold within a defined window rarely fall out over timing, and investors who leave it open frequently do.
The vehicle and where it sits
Club deals for European assets are frequently held through a Dutch structure, for the reasons set out in our note on owning European real estate through a Dutch holding: a neutral, well-understood jurisdiction, treaty access for investors from several countries, and a clean structure at exit. Where investors are resident in different countries, the vehicle has to work for all of them, which is an analysis to run before the money moves rather than after.
Where the deals come from
Club deals depend on access, and access to European real assets is largely relationship-driven rather than intermediated. We deal with that reality in our note on how European real estate deals actually reach an investor. An investor without access is dependent on what is being marketed, which is a materially different opportunity set from what is being transacted.
Montclare manages and structures European real assets for institutional and private investors, from acquisition through to exit. Our services are set out on our services page.
This article is informational and does not constitute investment, tax or legal advice. Asset management and investment advice are regulated activities and the treatment of any transaction depends on its facts. Each engagement is subject to scope and applicable regulation.