Joint Venture in Property Development Guide

Are you curious about what is involved in a joint venture property project? Or perhaps you are considering going down this route for a development idea? Whatever reason you may have for wondering about a property development partnership agreement, don’t do anything until you read this guide first:

Joint Venture in Property Development Guide

A joint venture is any type of project where two or more people get together to roll it out. In joint venture property development terms it can be an architect, construction company like ourselves here at Kisiel Group Ltd and a lender – or several lenders.

Then again, it can be just Kisiel Group teaming up with an individual lender. A property development partnership agreement can also be a handful of investors and a developer. In other words, a group of people working towards the same aim and where there is a mix of skills, knowledge and funding.

How does a joint venture work?

Often the joint venture – or property development partnership agreement - will be formalised under the creation of a temporary subsidiary company for that particular project. This is known as a Special Purpose Vehicle (SPV).

The joint venture property project could be for a block of apartments, a housing estate or a warehouse converted into flats. The investors buy shares, which give them a percentage of the profits.

What is a joint venture in real estate?

A joint venture property company works by means of mutual benefit. A property developer may have the knowledge, skills and expertise to carry out a successful development project. But if he or she can’t get the funding for it then the project is going no-where.

Likewise, a funder may be keen to get involved in property and construction but without knowledge, contacts and experience it’s simply not going to happen. And that’s the beauty of a property joint venture in the uk: all parties involved can help each other.

In fact, most joint venture housing developments are carried out this way. It can be difficult for construction and development companies to get funding at a competitive interest rate – especially if this is their first major project. With a funder under a joint venture property partnership not only do they get the money to go ahead with the build, but they also get it at a good rate of interest.

Likewise, the funder is usually on course to earn more money than if he or she had simply put their money in a bank or even stocks and shares.

Here in the UK, joint venture property tends to be an extremely good investment. That’s because, if anything does go wrong there are already fixed assets there (ie the land and building) to sell. If house prices fall when the development is completed, it should be possible to rent out the apartments/houses until the value goes up again – at which point the housing can then be sold for profit. The reason property is seen as such as key investment in the UK today because demand is huge – and it massively outstrips supply. And this will be the case for many years to come.

How to joint venture in real estate

To set up an SPV for real estate, all interested parties sign a joint venture agreement for land development signalling the build can go ahead.

It’s possible to download a property development joint venture agreement template from the internet. All parties sign the document once it is looked over by a lawyer/s who will formalise the agreement. As well as what is expected of each partner, the document will state the division of the monies each partner in the joint venture is due at the end of the project. This is usually when the properties have been sold.

The majority of big developments in the UK – both residential and commercial – are carried out by a property development partnership agreement. That’s because the costs involved in such projects as building a housing development or converting high rise offices into contemporary apartments are often so high. In order to fund them it’s necessary to include a number of funding sources, including banks as well as specialist lenders providing bridging finance and/or private individuals. Some developments even include the more modern forms of public lending such as crowdfunding or peer-to-peer lending.

How to find a joint venture partner

Family and friends can prove good joint venture property partners. So too can those in the property industry you trust and perhaps have worked with previously. Friends of friends can also be a good source contacts for a property development partnership agreement.

If you are looking for a funding partner then let potential funders know about the various deals you are doing – without asking directly for money. Let the lenders come to you (do let them know what you’re up to though).

If you’re the investor then get to know the movers and shakers in the property construction and development world first. Find out how it works and then, when the time is right, mention you may be interesting in helping out financially.

When you should avoid a joint venture

Property development partnership agreements are a great way of making sure you have everything in place to get a property development up and running. But, there are times when it may not be the best way forward. And that’s because, not everyone likes working in such a collaborative method.

With a joint agreement property project, all partners in the business get their say. Or at least, they get kept up-to-date and continually informed of how the development is coming along. And it may be that some of the bigger decisions have to be shared and approved. Some people like being their own boss and allowed to just ‘get on with things.’ These are the type of people for whom joint venture housing developments simply won’t work.

Another reason to avoid getting involved in a property development partnership agreement is if there is no recognisable exit. By that we mean if the project is to refurbish then rent out a property without a date to sell further down the line. An ongoing agreement like this is doomed to failure because someone is sure to want to pull out at some point and spend their money elsewhere. And, with no time frame for the exit, that’s when things start to get messy.

In conclusion then, joint ventures are great for getting a property development off the ground when it might otherwise have stalled due to lack of funding or expertise and experience. The SPV agreement needs to be drawn up formally, with solicitors involved and ideally, there should be an exit plan. All partners should be willing to work in a collaborative fashion too.

Lukasz Kisiel is a builder and property developer who has been involved in many joint venture property partnerships over the years. To find out more about his work and company Kisiel Group Ltd take a look at his website today.