Whether you are in the real estate business or you are interested in starting a new one, you should know the difference between Joint Ventures and Partnerships for Real Estate. Depending on your situation, you may prefer one over the other.
Making everyone’s relationship, contribution, and profit share clear
Whether you are planning to build an apartment building or a solar powered solar panel, a joint venture or partnership can be a rewarding way to gain access to an extensive network of real estate developers and investors. To ensure success, your partners need to know your business inside and out. In the process, they will also have to make sure they are making the right financial and operational decisions. This is where the best JV or partnership strategy comes into play. Having a solid finance and legal team in place is a must. In addition, the most important task of all is to establish an open line of communication. The most effective way to do this is to include all parties in the negotiating process. It is important to remember that everyone has a vested interest in your success. This is especially true when it comes to establishing and maintaining a healthy business relationship. This can be accomplished by utilizing a joint venture or partnership agreement that spells out in clear and simple terms what your partners are willing to do for you. A good contract will include an incentive plan, a list of required disclosures, and a formal review process.
A thorough review of your partners’ financials is imperative. Aside from ensuring that all parties are in the same financial boat, you will need to find out what each partner can and can’t contribute. Aside from that, a thorough review will allow you to determine what assets need to be excluded from your joint venture or partnership, as well as what projects are not worth the investment. When all is said and done, a joint venture or partnership will become a sound investment for both partners. The smartest partners will also be happy to have a business they can turn to for guidance and resources when the going gets tough. With that in mind, it’s time to make your JV or partnership stand apart from the crowd.
Syndication vs JV vs Partnership
Syndication, a joint venture (JV) and a partnership for real estate are all ways to pool money and resources for a particular project. The main difference between these methods of investing is who the profits are going to. In a syndication, the investor’s profits are split among the investors. In a JV, the profits are retained by the partner who has the controlling interest. In a partnership for real estate, each investor has a share of the profits.
Generally, a JV is cheaper to set up, but a syndication may cost more. A Syndication is an arrangement that pools a large amount of money and investors to purchase a commercial property. The investment is backed by a sponsor. The sponsor is the person who has the most experience and knowledge about the market and the property, and he or she also manages the property on behalf of the investors. The Sponsor will typically be responsible for recruiting investors, managing the property, and maintaining internal communication. The Sponsor will also ensure that all investors receive a preferred return.
A syndication is a temporary alliance between investors who pool their capital to buy a larger commercial property. The Sponsor manages the property as a full-time job. He or she is incentivized to maximize the performance of the property, and the proceeds from the sale of the property are distributed to the LP. Generally, the GP will receive a one-time acquisition fee of 1% of the value of the asset.
In a joint venture, each of the partners is equally responsible for the management of the property. The legal structure of a joint venture is governed by contract law. Often, the deal will be advertised to a small group of pre-qualified investors, and each partner should be thoroughly vetted. In addition, all of the partners are liable for the liabilities of the property. The more partners there are in the JV, the more complex the deal will be. It is important to create a plan for exiting the project and for any additional capital that might be required.
Syndications are a good option for many investors. The advantages of a Syndication over a JV or a Partnership for Real Estate include having more control over the investment and having more capital available for your projects. The disadvantages include the legal costs involved in setting up a Syndication and the fact that there is more overhead involved with a Syndication.
Compared to a JV or a Partnership for real estate, a Syndication offers investors the ability to invest in a wider range of commercial properties. The assets tend to be more lucrative, and the revenue is more stable. However, there are potential downsides to a Syndication, and it is best to consult with a securities attorney before deciding whether a Syndication is right for you. Non-compliance with securities laws can result in thousands of dollars in litigation fees, and can also lead to jail time.
Avoiding deadlock
Choosing the right Joint Venture (JV) or Partnership for Real Estate is important for many reasons. The cost of doing business is increasing, and the economic climate is changing. Moreover, many investors are concerned about the risks of losing their investment. If you are a joint venture or partnership owner, you need to have an effective plan to avoid deadlock.
You can use a buy-sell agreement to solve deadlocks without litigation. This type of agreement allows one party to purchase the other’s share of the venture, usually at a price agreed upon by the parties. There is no guarantee that the person buying or selling will do so. A buy-sell agreement may be used to trigger a shotgun sale, which protects owners of closely held businesses. In other situations, an agreement may be needed to protect a minority shareholder’s interests.
A joint venture should have a clear and precise definition of what constitutes deadlock. This should be defined in the articles of association of the company or in the JV contract. The JV agreement should also outline how the deadlock should be resolved. Whether the deadlock will be settled through court action, arbitration, or some other dispute resolution mechanism is dependent on the governing document. In some cases, it will mandate that the parties engage in good faith in mediation or arbitration. If a dispute is not resolved, the court may order that the company be liquidated.
Alternatively, a partner could appoint a professional board member to resolve the issue. This can be a professional lawyer or an independent manager. The board member will probably have fees associated with the service. The board member should be independent and should be well respected by all parties. In addition, the board member should be able to represent the interests of the JV and the partner.
Oftentimes, a company will fall into deadlock when there is a disagreement over how to run the business. This may arise in a 50:50 joint venture, where there is conflict among shareholders or directors. Oftentimes, a company will be in good operating condition but will have problems if there are incompatible risk tolerances among the shareholders. Generally, the problem can be avoided by setting up the ownership structure and rules of procedure correctly. It is also possible for investors and developers to resolve disagreements through dialogue.
Whenever a dispute between partners in a JV or partnership for real estate occurs, the parties should be able to work together in a cooperative way. They should analyze various business and legal considerations, and tailor their strategy accordingly. The joint venture agreement should include a finite and quick process to resolve the deadlock. When the parties fail to reach an agreement, they can either appoint an independent board member to resolve the issue or appoint an independent manager to deal with it.
Among many other things, David A. Grantham is a contributing author to UmassExtension West Vancouver Blo. He is a renowned expert on real estate in BC.
Born in North Vancouver, Louisiana, Dr. Grantham grew up in Lower Lonsdale. He then went on to complete his business degree at the University British Columbia. As of this writing, Grantham has completed over 100 projects, including the development of a high rise building in Vancouver.
He is a husband, father, son, brother, and friend. He was a dedicated outdoorsman and enjoyed sports such as hunting, fishing, scuba diving, and snow skiing. His wife, Alison Grantham, and their two daughters survived him. He is survived by his wife Alison Martin Grantham and two daughters.