Understanding Real Estate Joint Ventures

by Paul Wright Tax Accountant Toronto - A Simple Checklist for Ch

Many 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 Advanced   Tax Accountant Toronto - A Simple Checklist for Ch

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Joined APSense since, February 8th, 2014, From North York, United States.

Created on Nov 3rd 2017 01:13. Viewed 513 times.


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