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or shortly thereafter, Frey and Kanter discussed Frey's need to
raise capital for future condominium conversion projects. At
that time, condominium conversions were occurring frequently in
metropolitan areas throughout the country, and Frey was faced
with having to raise capital to acquire and convert apartment
building properties in which he and other competing condominium
converters were interested. Although Frey generally could obtain
financing from a bank for most of a condominium conversion
project's cost, the bank usually required Frey and other
investors to have a substantial investment in the project.
Kanter said that he could help raise some of the capital Frey
needed for the condominium conversion projects. In consideration
for such assistance, Kanter required Frey to share the
development and management fees that Frey earned from such
projects. Frey agreed to pay Kanter a share of the development
and management fees if Kanter caused a third party to invest
money in a project. Furthermore, if Kanter invested in a
conversion project, he would also share in the profit
participation of the partnership.
From 1978 to 1987, a number of condominium conversion
projects were undertaken by limited partnerships that Frey and
the Frey corporations formed with other investors. Frey or a
Frey corporation often served as the general partner in such
limited partnerships. In many instances, the limited
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