Articles
Understanding Real Estate Joint Ventures
by Paul Wright Tax Accountant Toronto - A Simple Checklist for ChMany
real estate investment companies are entering into real estate joint venture.
The pertinent question is what the real estate joint venture means?
Life span of many equity funds created during the years
2006 to 2008 are now coming to an end after a decade. This calls for
restructuring of the investments and the analogy applies to the real estate
industry as well. An effective means of the fund restructuring is entering into real
estate joint venture.
Use of Real Estate Joint Venture
Before proceeding further it is
necessary knowing how the joint venture real estate investors work in
such joint venture. Use of the joint venture is to match the capital required
or desired by the operating party to acquire or develop real estate properties.
On the other hand the provider of the capital invests in real estate assets
accordingly on mutually agreed terms and conditions between the operating
member and the capital member.
Why Capital Members enter into Real
Estate Joint Venture?
Like any business deal; the primary
motivation factor for the capital member is profit making. They choose an
operating member that is expert in real estate business and only needs the
financial support to do well and earn profits in the business. Finance is a
crucial factor especially when the developer is aiming to build to suit commercial real estate. These projects are usually expensive in nature
and paucity of capital can adversely affect the quality of the project. On the
other hand buyers in such case always look for high quality and the chances of
making profits can be reduced in such cases. The capital member in the joint
venture keeps the fund flow intact by providing necessary capital. This also
takes care of the requirements of the operating partner that is otherwise
competent with the only limitation of not having adequate fund to operate the
project.
Real Estate Joint Venture Structure
Common structure of the real estate
Joint venture is that the operating member that is one of the real
estate development companies, form a limited liability company in
association with the capital member. Basically the capital member is one of the
real estate investment companies working as the financier of the real
estate development project and the developer partner takes care of physical
implementation of the project. Funds handling and later profit sharing is made
on pre-determined terms and conditions that are mutually agreed upon between
the operating and capital partners. Usually the partnership deed or the bylaw
of the company contains all details about the structure and operating system.
Components in Joint Venture Structure
The real estate joint venture agreement
sets up the respective rights and duties of the operating and capital partner
in the venture. It includes the terms of management rights and control over the
newly formed limited liability company including the exit and transfer rights
relating to the joint venture. The agreement also includes other applicable
rights as well as remedies available to the partners in the joint venture.
It is very
important in any joint venture to specify the capital contribution and using
limits, waterfall distribution, and economic percentage and control besides
fees to be paid so as to avoid any future litigation in this regard.
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About Paul Wright 
Tax Accountant Toronto - A Simple Checklist for Ch
65 connections, 2 recommendations, 329 honor points.Joined APSense since, February 8th, 2014, From North York, United States.
Created on Nov 3rd 2017 01:13. Viewed 517 times.
