There are many reasons why two parties establish a joint venture relationship – all often include banking relationships, financial reasons, time, expertise, and the continuous and ongoing list. Joint ventures can be great because both parties come together for a common purpose and participate in both risk and return. If you`ve been working in real estate for a while, the chances are extremely high that you`ve entered into a joint venture agreement at least once. Right after the recession, joint venture agreements became a cry. Especially because lenders have started imposing loan rates of up to 70%. Not many real estate investors are willing to risk so much, not alone anyway! But perhaps you do not know what a joint venture agreement is? Whether you do or not, this article can teach you something new. Start. An important distinction to be made in the design of the conditions of a joint venture is the distribution of the profits made by the members. Compensation does not necessarily have to be distributed fairly. For example, more active members or members who have invested more in the project may be better compensated than passive members.
Click here to read the full magazineCommon Real Estate Companies: Equity and Expertise Marriage 2019 January Launch of IPSX – the first and only commercial real estate exchange Other reasons why companies can enter into a joint venture relationship could be to have access to wider markets, share resources, finance the growth of another company, to develop or diversify products. If you buy, repair and sell a property, you must enter into the agreement on how to manage it if the property is not sold. They must also indicate whether both partners will be part of the decision-making process to reduce the price of real estate. It is really useful to include all the most pessimistic contingencies and scenarios. This is beneficial for both the investor and the JV structure, as it means that the Luxco 1 SPV can for example own SPV Luxco 3 or SPV Luxco 4, which are pools of totally separate and banking real estate assets. The other advantage of a Luxco security – especially in a multi-asset portfolio – is that it creates a single execution point for lenders. Real estate joint ventures differ from typical JV structures because of the share of equity in the invested capital. Most JV structures typically include a relatively even 50/50 or 60/40 capital allocation among JV partners.