Joint Venture Development

There are real estate investors who would like to participate in greater returns but do not have the time and direct expertise to commit to developing or redeveloping a commercial or residential project. An option that can benefit this type of Investor is a Joint Venture development, or (J.V.)

A Joint Venture is an arrangement where the Investor and Developer enter into agreement J.V., which requires the Investor to place capital, by way of cash or property, into the J.V., and requires the commitment of the Developers, time, knowledge, expertise and vision to create value to the property.

Although there are many different ways to structure a suitable Joint Venture, below is a general outline of one of the more common J.V. structures:

• The Investor contributes its property or cash into a Joint Venture, which is treated as “investor capital”, the amount or price of which shall be predetermined and agreed by both Investor and Developer.

• Developer will fund a percentage of the future development costs and obligations pursuant to a mutually agreed upon development budget which could include, but not limited to, pro-forma of highest and best use, entitlements, rehabilitation - construction, lease-up, and sale.

• Until stabilization, Developer shall accrue interest at an agreed upon rate on all capital invested, generally 8%.

• Until stabilization, Investor shall accrue interest at an agreed upon rate on all capital invested, generally 8%. Stabilization shall be defined as the point at which net operating income, exceeds the projects interest carry.

• After stabilization of the project, the Investor will earn and agreed amount in a cumulative preferred, cash on cash return, on all investors capital.

• Thereafter, every dollar in stabilized net operating income remaining after payment of the preferred return shall be split between the Investor and Developer according to pre-determined percentages.

• Upon sale of the project, the Investor will receive a return of its capital account plus a pre-determined preferred return on its capital invested. Thereafter, proceeds will be split, generally 50% to Investor and 50% to Developer.