Real estate Joint Venture is gaining popularity all around the globe, it is taking a new look, and property investing is becoming easier for people, especially those who have land but do not have the financial capability to develop their desired property/building project.
Joint Venture in real estate often come in a situation where one party have land and the other party provides the capital to fund and complete the project, most times executed by developers.
People who have land without financial capabilities are opting for joint venture partnerships, and this is already becoming popular in major cities of the world where there are many land scarcities.
Due to funds and financial limitations, real estate investing gurus and property owners seeking to develop their land can opt for Joint Venture financing as viable development options.
Joint Venture partners range from financial institutions, private investors, real estate development companies, property investment companies and real estate investing experts.
As a real estate expert, enthusiast, consultant or expert, It is important you know and understands everything about Joint Venture in Real Estate Investing. I will be explaining everything about real estate joint ventures, using Nigeria as a case study.
Ibugbe is a Real Estate Marketing and Development Consulting company. If you are looking to buy, invest or dispose property in Nigeria, let Ibugbe.com handle it for you. Feel free to reach out to Ibugbe.com for Real Estate Joint Venture Opportunities in Nigeria.
What is Joint Venture in Real Estate Investing
Table of Contents
A joint venture in Real Estate Investing is a system whereby two or more persons form a partnership to develop a real estate project. The main purpose of the partnership is to mutually benefit and profit from the final project.
The way it usually happens in real estate investing is that one party may have land but doesn’t have the financial resources, experience, technicalities or other necessary tools to see the project through to the completion stage. Hence the property owner may seek a partnership with another party with all the required expertise, financial resources and skills to put the project into reality.
Real Estate Joint Venture Scenario
A perfect practical illustration is when someone acquires property to build a block of flats, but has a change in financial circumstances and planned to dispose the land because he/she could not achieve the project dream.
The person waited for almost a year and could not find a buyer, he then later consider to look for someone who could finance the project, see it to completion and then share the final project based on equity contribution for the final project.
In this case, the land must have been equated to money form, and the cost of construction must have also been considered. In the end, the final project will be shared based on the percentage contribution to the final project.
Sometimes, real estate joint ventures may look simple, but may be complex, especially when we have multiple parties involved, each bringing something to the table.
Real Estate Joint Venture Framework
A real Estate Joint Venture usually happens between a property developer and a land owner. Both of them are interested in real estate investing but lack one or two resources to achieve their dream.
In a typical Joint Venture model, a land owner contributes his/her land towards a project, while the developer is responsible for making sure the project is realized, the developer facilitates government documentation, approval, financing, construction and marketing.
In a real estate joint venture deal, not every developer should be considered, it is good to always look out for the developer’s credibility, experience, operating structure, and his / their real estate project expertise.
Upon project completion, and how a Joint Venture deal is structured, the land owner may receive an upfront payment, a share of revenue accumulated or a share of the final project, it may also be shared based on a percentage of equity contribution.
A Joint Venture arrangement can make the initial costs for the developer reduce by saving on the cost of land purchase, and then quickening the construction process.
Joint Venture Partnership in Real Estate Investing
A partnership is usually formed between the Landowner and the Developer, the basis of the partnership is formed on a mutual agreement between the land owner and the property developer.
Where the two parties are to share the developed properties, sharing formulas are usually based on equity contribution.
The land owner must go into a joint venture agreement and grand full authority to the developer, and then ensure that all the necessary logistics are given to ensure the full completion of the project.
Sharing & Equity Contribution in Real Estate Joint Venture
Many factors affect joint venture sharing in real estate deals, most times, these are usually based on equity contribution.
Often, the major factors that dictate project sharing revolve around;
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Land cost.
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Location.
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The choice of building or structure that can be constructed.
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Development Approval Costs.
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Land Clearance Costs.
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Interest Rates.
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Project time frames.
The more expensive your land, the more your share in the project equity sharing. The developer would also have to consider any fees related to building permits, providing infrastructure and also project construction.
Getting Joint Venture Partners for Real Estate Project
There are many ways to get joint venture partners for your real estate projects. The preliminary thing to do is to know the type of development you want on your land and also have in mind that you are ready to share in the joint venture deal.
The next thing to do is to create awareness and let people know that you are looking for joint venture partners for your land, or you are looking for a land owner who can go into a joint venture partnership with you.
Joint Venture partners can be identified through these mediums;
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Friends and Family Network
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Real Estate Brokers
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Business Forum
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Online Real Estate Advertising Platforms
Often time Joint Ventures are built on relationships. The stronger your relationship with a prospective partner the easier it is to strike project deals/partnerships.
The best way to make a real estate joint venture partnership work is to build a relationship with real estate brokers who have detailed and sound knowledge of the real estate market in your community or locality.
Real estate brokers have the necessary expertise and networks to broker transactions that leave both the land owners and developers happy.
Ibugbe is a real estate marketing and development consulting company. If you are looking to buy, invest or dispose property in Nigeria, let Ibugbe handle it for you. Feel free to reach out to Ibugbe.com for Real Estate Joint Venture in Nigeria.
Structure & Agreement for Real Estate Joint Venture Partnership
In most cases, every stakeholder in a real estate joint venture transaction usually forms a Special Purpose Vehicle – SPV – they carry out the Real Estate project as an independent corporate entity in the form of a Limited Liability Company.
The parties involved in the partnership entered into a joint venture agreement, which states all the conditions of the joint venture partnership. A joint venture partnership agreement usually follows these structures;
- the objective
- the equity contribution of the JV partners
- how properties and profits will be shared among the partners
- delegation of responsibilities for the project
- ownership rights over the project
- duration of construction
- exit modalities
- etc.
Components of a Real Estate Joint Venture Agreement
A real estate Joint Venture Agreement involves the following major components :
Project / Profit Sharing
An important component in every joint venture agreement is how partners in a JV transaction will share/distribute profits generated from the project. Project / Profit sharing may not necessarily be equally distributed among partners. People that have invested more into the JV project may be rewarded better than others who contributed lesser equity.
Capital contribution
The real estate Joint Venture partnership agreement is expected to specify the exact amount of capital contribution each project partner is bringing on board. For example, an equity contributor may agree to contribute 25% of the required capital, while another person is required to contribute 75% of the equity.
Management and control
The real estate Joint Venture Partnership agreement is expected to explicitly specify the exact structure of the Joint Venture Partnership and the responsibilities of all parties involved in the management of the real estate joint venture project.
Exit mechanism
A Joint Venture partnership agreement needs to explain how and when the JV partnership will come to an end. The JV agreement must also list out all the events that might allow one or both parties to trigger a dissolution of the Joint Venture Partnership.
Final Remarks
Joint Venture Partnerships are innovative ways of investing in real estate. It is a win-win game for all parties involved, both the land owners and the developers benefit.
The Developer profits by not putting money down for land purchases. The initial costs for the developer are significantly reduced and the construction process can be quickened.
Equity contribution or real estate investing via joint venture partnership is a win-win situation for the parties involved. The reward for a land owner in a joint venture deal can come in a variety of ways, this is often a combination of an upfront premium payment or a share of the developed project upon completion.
Disclaimer
DisclaimerThis is informational content, you must engage real estate experts who are fluent in real estate joint venture transactions when going into real estate joint venture transactions.
Always do your due diligence before you engage anyone for a real estate joint venture project.
Ibugbe is a real estate marketing and development consulting company. If you are looking to buy, invest or dispose property in Nigeria, let Ibugbe handle it for you. Feel free to reach out to Ibugbe.com for Real Estate Joint Venture opportunities in Nigeria.
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Author Profile
- I am Bolaji Afolabi, a Partner at Globalclique, and a CIO @ Ibugbe and Partners - Pan African Real Estate + Technology + HR Consulting Group. Bolaji is celebrated for his expertise in seamlessly blending human capital with cutting-edge technologies, and also providing professional advisory services.
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