Acting for the landowner
The deal we advised a landowner to decline
A 50/50 joint venture in a redevelopment of more than $300m, modelled and declined, with a better structure agreed and executed instead.
Financial modelling · Deal structure · Commercial negotiation
Declined
a 50/50 joint venture in a redevelopment of more than $300m, on the strength of the downside modelling
The situation
A major Auckland landowner held a strategically located South Auckland industrial site, occupied under a long-standing ground lease by a national grocery retailer.
The retailer proposed redeveloping it as a semi-automated grocery distribution facility of approximately 50,000 sqm, rising 42 metres, on a site of 15.5 hectares. Total usable internal floor area would reach 89,230 sqm on completion. The same storage and distribution capacity would have required around 130,000 sqm of conventional warehousing. It was put forward as a 50/50 joint venture.
The structure offered equal equity, shared upside, and a counterparty with the capital and capability to execute. The landowner engaged Klug for an independent assessment before committing.
The challenge
Counterparties of this scale arrive with in-house property teams, external counsel and a preferred structure already drafted. The asymmetry a landowner faces is not legal advice, which is readily bought, but commercial intelligence about how the other side actually makes decisions.
A structure can look balanced in headline terms while placing disproportionate downside with one party. The 50/50 split had been presented as standard; the underlying economics had never been independently tested.
The approach
Klug modelled the proposed development — build cost, projected end values, programme, financing costs, and the fee structures embedded in the joint venture agreement — and ran base, downside and stress scenarios against the risk-adjusted return on the landowner’s equity.
The review extended to governance: decision rights, cost control mechanisms, and exposure to delay or overrun.
Klug then acted for the landowner through the negotiation that followed, critiquing the information supplied by the retailer and working alongside the landowner’s legal advisors and project consultants across successive revisions of the heads of terms. Klug supported the landowner directly in face-to-face negotiation.
The outcome
Under realistic downside scenarios the 50/50 structure did not deliver a return on equity sufficient to justify the execution risk and the opportunity cost of committing the site.
The landowner declined the joint venture as offered and pursued an alternative structure — one that better reflected the site’s value and the landowner’s risk appetite. Terms were agreed and executed, materially improved for the landowner across rental yield, lease structure and review mechanism relative to the counterparty’s opening position.
Those terms sit under a binding confidentiality undertaking, so the commercial detail is not published here and will not be — the same discipline our clients should expect us to apply to their transactions.
Key takeaway
The most valuable advice is sometimes that the deal in front of you is not the deal to do. On projects of this scale the landowner’s leverage sits in a narrow window — after the counterparty has committed to the site, and before heads of terms are signed.
Legal advice tells you what a clause means. Commercial advice tells you what it is worth, and what the other side will trade for it.
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