The single most common reason an LA apartment building comes to market is not a financial decision. It is a partnership decision. Two brothers who inherited the building. Three college friends who bought it together in the nineties. A father and son where the father is ready to retire and the son wants to keep operating. A trust with three beneficiaries who do not agree on anything. The structure that owns the building has aged faster than the building has, and the path forward requires resolving the partnership before resolving the asset.
These sales are technically simple — one building, one transaction, one closing. They are operationally complicated because the seller is not one person with one set of objectives. The seller is a partnership with internal disagreements about price, timing, structure, and what happens to the proceeds. The transactions that close well are the ones where the partnership disputes get resolved before the building hits the market. The transactions that close badly are the ones where the disputes show up in escrow.
When co-owners want different things, three structural paths produce a resolution.
Voluntary sale of the entire building, with proceeds split per the operating agreement or partnership agreement. This is the simplest path when all parties agree that selling is the right outcome. The disagreements are limited to price expectations and timing, both of which can usually be resolved by a brokered process and an honest competitive market.
Buyout of one partner by the others. One or more partners want to continue holding; the others want liquidity. The remaining partners purchase the exiting partner's interest at an agreed valuation. This avoids the sale and the transaction costs that come with one. It also requires that the partners staying in have access to the capital to buy out the partner exiting — often easier said than done with multifamily values where they are now.
Forced sale through a partition action. When the parties cannot agree, any co-owner can file a partition action in California superior court. Partition in kind (physically dividing the property) is rarely available for an apartment building — the property doesn't physically divide. Partition by sale (selling the building and dividing proceeds) is the usual outcome. The court appoints a referee, the property sells through a court-supervised process, and proceeds are distributed per the court's allocation. Partition is the worst-result path for everyone — slowest, most expensive, and almost always producing a discounted sale price because the buyer pool prices the legal friction into their offers.
The right path is determined by the partners' relative positions on three questions. Do all partners want to sell? If yes, voluntary sale. Does at least one partner have the capital and the will to buy out the others? If yes, buyout. Have negotiations broken down completely? If yes, partition — and the partners should think hard about whether one more attempt at voluntary structure is worth the savings.
When partners disagree on what the building is worth, the resolution is usually a brokered opinion of value or, in adversarial situations, two appraisals — one from each side. The opinion of value is a free service from a qualified multifamily broker; the appraisal is a paid engagement, typically $5,000 to $15,000 for an LA multifamily building, and the result is a documented valuation that family lawyers, partnership lawyers, and tax counsel can rely on.
The mistake partners make on pricing is treating the broker's opinion or the appraisal as the final answer. Neither is. Both are estimates of what the market will pay; the actual market test (a real listing producing real offers) is the only thing that produces a real number. Partners who get stuck on the appraisal as the final answer often delay the sale by months and pay for the delay in compressed NOI, deferred maintenance accumulation, and changing market conditions.
The cleanest path is to use the opinion of value or appraisal as a directional input, agree on the structure for distributing proceeds among partners, and then let the actual market test determine the actual price. The partnership distributes whatever the market produces per the pre-agreed allocation. The market did the work the appraisers were arguing about.
When one partner buys out another, three structural choices matter.
Cash buyout at close. The buying partner pays the exiting partner the full agreed value at the buyout closing. Clean, final, and dependent on the buying partner having liquid capital or financing.
Seller-financed buyout. The buying partner pays a portion at close and a promissory note for the balance, typically secured by a deed of trust on the building or a pledge of partnership interest. This works when the buying partner has the operational capacity but not the immediate liquidity. The exiting partner becomes a creditor of the buying partner for the term of the note — a relationship that needs to survive the partnership dispute that created the buyout in the first place. Often it does. Sometimes it doesn't.
Refinance-funded buyout. The buying partner refinances the building, using the new debt proceeds to fund the buyout. The math depends on what the building can support in new debt at current rates and underwriting. For a building with significant equity and reasonable in-place NOI, this can work cleanly. For a building that is tightly leveraged or has NOI compression risk, the refinance proceeds often don't reach what the exiting partner needs.
Each structure has tax consequences that vary based on the partnership's basis, the building's basis, the holding period, and the jurisdiction of the partnership. Partners contemplating a buyout should walk the tax math with their accountant before agreeing on the structure. A buyout that looks clean on the surface can produce ordinary-income recognition for one partner and capital-gain treatment for another, depending on how it is structured.
A partnership 1031 is more complicated than a single-owner 1031 because the partnership entity is the seller of record. The partnership exchanges into a replacement property. Individual partners do not separately exchange; the partnership does.
The complication arises when individual partners want different things — Partner A wants to cash out, Partner B wants to 1031 into a replacement, Partner C wants to retire and take cash. The structure that resolves this is a drop-and-swap: prior to the sale, the partnership distributes tenancy-in-common interests in the building to each partner pro-rata. Each partner then makes their own decision — sell their tenancy interest for cash, or 1031 their tenancy interest into replacement property.
Drop-and-swap structures are well-established but the IRS has historically scrutinized them. The drop has to happen well enough in advance of the sale (timing requirements vary by case law and CPA judgment), and the tenancy-in-common owners have to behave as tenancies-in-common rather than continuing to operate as a partnership in disguise.
The structure works for partners who want different things on the back end of the sale. It does not work as a last-minute fix. If the partnership is going to drop-and-swap, the decision should be made and executed well before the building lists, not in escrow.
A partnership dissolution sale, like a divorce sale, is visible to the buyer pool. Multiple sellers signing, sometimes through powers of attorney, sometimes with visible negotiation between parties — the market reads it. The discount it produces depends on how clean the listing presentation is. A partnership where the partners have aligned on the sale terms and are presenting as a cooperating seller produces a sale that looks normal and prices normally. A partnership where one or more partners are signing under partition-action duress produces a discounted sale.
The actionable point is the same as in the divorce context. Resolve internally before going to market. Present externally as a cooperating seller. The discount goes away.
The first thing I want to know is whether the partners are aligned that the building is going to sell. If yes, the conversation is straightforward — pricing, timing, marketing strategy, division of proceeds. If no, the conversation is about whether there is a structure that gets the holdout partners to a yes (often a buyout of the partners who want to exit), and if not, whether the willing-to-sell partners are prepared to take the partition path with eyes open about what it costs.
I have closed partnership sales where the partners hadn't spoken to each other in three years and where the closing was the first time several of them had been in the same room since the dispute started. Those sales close when the partners are willing to delegate the commercial questions to the broker and the legal questions to their counsel, and to let the building's sale proceed on its own merits while the personal issues stay separate. They close badly when the personal issues keep arriving inside the commercial process.
Every partnership outlives its enthusiasm. The first sale of co-owned LA real estate happens when the original logic of the partnership stops being the operating logic. The owners who recognize that moment and sell into it — voluntarily, by agreement, with the building presented cleanly to the market — get the value of the building. The owners who fight through the partition process get the value of the building minus the cost of the fight, and the fight is rarely cheap. The decision to sell is sometimes hard. The decision to sell well is usually still available.
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Can one partner force the sale of an LA apartment building?
Generally yes. Any co-owner can file a partition action in California superior court, and partition by sale is the usual remedy for real property that doesn't physically divide. The process is expensive and slow, and partition sales typically produce discounted realized prices compared to voluntary sales.
Can the partnership 1031 exchange if only some partners want to defer the gain?
Yes, through a drop-and-swap structure. The partnership distributes tenancy-in-common interests to each partner before the sale, and each partner then decides independently whether to sell for cash or 1031 into replacement property. The structure has timing and operational requirements that should be planned with a CPA well before listing.
How do I value my partner's share of our apartment building?
The cleanest input is a brokered opinion of value from a qualified multifamily broker not retained by either side, supplemented if needed by a paid appraisal. The most accurate answer ultimately comes from the actual market — a competitive listing produces real offers that resolve disagreements about value better than any pre-sale estimate.
What happens if I want to keep the building but my partner wants to sell?
You can buy out your partner's interest in cash, through seller financing, through refinance proceeds, or through a combination. The structure depends on your liquidity, the building's debt capacity, and the tax consequences both parties face. A buyout avoids the sale entirely but requires that you can finance the partner's exit.
How much does a partition sale discount the price of an LA apartment building?
Partition sales typically produce 10% to 20% discounts on realized price compared to voluntary sales, depending on how visible the legal process is to the buyer pool, how aggressive the court-appointed referee's timeline is, and how many qualified buyers actually engage with the encumbered process.
Michael Sterman is Senior Managing Director Investments at Marcus & Millichap, specializing in Los Angeles multifamily transactions.
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