Basic Features of Real Estate Joint Ventures

In real estate industry real estate joint venture refers to restructuring of private equity funds and creating joint ventures. The current trend shows that the process is fast turning into mainstream in the industry. Basically they provide a way of matching the capital that is required for either acquiring or developing real estate projects. The joint venture involves at least two stakeholders. One of them assumes the role of performer and takes care of the practical implementation of te project whereas the other one takes care of the financial requirements for effective implementation of the project.

 

Methodology of Real Estate Joint Venture

The methodology for the process involves the partnership of two stakeholders. One of them is the operating member and the other one is one of the joint venture real estate investors referred as the capital member in the joint venture. It is the former that operates or manages the real estate assets whereas the later is primarily financing partner in the real estate project.

 

Why Capital Member Enters into Real Estate Joint Venture

Capital members assume the role of investors in the joint venture with an operating member because they need the services of an expert in real estate assets and also for management of the assets on regular basis. Operating members usually have the ability to acquire, manage, and develop assets for projects build to suit commercial real estate that can provide rewarding returns on the investments thereby swelling up the profits share of both partners. They however often lack the capabilities of providing adequate amount of material capitals for the joint venture. This deficit is compensated by the capital member in the venture.

 

Common Types of Real Estate Joint Ventures

Most common type of real estate joint ventures is those in which the operating member forms a limited liability company along with the capital member. On formation of the limited company the partners enter into the operating agreement that is also known as joint venture agreement in the real estate industry. With this agreement the following aspects are taken care of by the real estate development companies and their investing partners. The agreement deals with rights of the respective parties in respect of profit sharing, decision making, exit and transfer rights of membership, and all other applicable conducts, rights, as well as remedies.

 

Joint Venture Agreement Components

Some of the major components of the joint venture agreements concluded in real estate industry are capital contributions and the rights and regulations to be followed by the two partners in the project. Main objective of the capital contribution determination is to ensure specifically the capital contribution to be made by the real estate investment companies so that there is no confusion in this regard.  The agreement should specifically tell what the mandatory initial contribution should be and how the operating member can use them.

 

Usually the capital member provides 90-95% of the capital and the operating member contributes 5-10% of the capital requirements in the real estate joint venture project.