What is a Joint Venture in real estate and why do you need one?
A Joint Venture can be a highly effective way to raise equity for all types of CRE projects. Having reliable JV Partners allows sponsors to scale their own equity in multiple projects and confidently pursue future deals.
A joint venture is defined as “a business enterprise distinct from the participants in it, which is carried on by them jointly.” “Each participant has a proprietary interest in the venture while still having a common interest in its success.” To create a Joint Venture Agreement, you must clearly spell out each party’s respective rights and obligations. You can use one of the many boilerplate Joint Venture Agreements available from most commercial legal sources or you can write your own. Here are some basic suggestions: Include these provisions in your JVA: The agreement shall continue until terminated pursuant to its terms. Each of the parties agrees to use best efforts to carry on the business of the joint venture. Each of the parties will bear the expenses of carrying on the business of the joint venture. Each of the parties will contribute cash, property, services or whatever is necessary to carry on the business of the joint venture.
Raising equity for real estate projects can be both time consuming and difficult. Continuously raising small sums of equity capital from dozens of smaller investors is not only time consuming, but eventually those investors will run out of cash to invest in your deals. Aligning yourself with a strong joint venture limited partner that can come in with 90% of the required equity will allow sponsors to pursue real estate projects without fear of running out of investor capital and free up their time to pursue more deals.
The first step in finding a suitable JV partner is by having a clear understanding of your own deal objectives. After all, it is unlikely a prospective investor will want to put in money and time if he does not think there is a good chance of getting his money back. Therefore, it is important to set realistic expectations from the beginning. If you are looking for “pie in the sky” investors, you will be disappointed. On the other hand, if you are willing to make some hard decisions and put in the necessary work, there is no reason why you can’t find an investor who’s interest and investment criteria will align with yours.
Once you are ready to start sending out your deal, knowing the right joint venture partners for your projects is imperative to a successful raise. Not every deal is going to fit every LP, and since there are 100’s of JV LP funds out there, maintaining a relationship with all of them is impossible for most sponsors to do. That is where the benefit of working with Clopton Capital comes in, since it is our business to maintain those types of relationships, we can quickly get your OM in the hands of JV limited partners that have matching acquisition criteria.