By Vikash Sinha | 13th October 2017

What are the key points of real estate joint ventures?

Across the country, real estate markets now flex their recovery through joint venture. Real estate market is seeking joint venture (JV) partners to help finance for their projects and so that later could boom in the cash for developments.

 Availability of cash can make it easier to launch projects and attract high-quality tenants. To expand the project and get higher growth in Real estate, developers are joining hand in joint ventures. This is going to help them in many ways but developers need to pay close attention to the details of the partnership. Joint ventures are an aged structure through which to develop real estate. In real estate joint ventures, it combines the real estate expertise of a developer member with the equity of a capital and fixes growth in the market. With Joint venture accomplishment, poor planning will turn to careful attention where it will have complete accounting of the project.

By means of joint venture, real estate investors will build commercial and residential real estate which ensures to provide best ever services considering the aforementioned facts. Every real estate joint venture has to agree on below mentioned terms to start the project.

Accounting

With joint venture there is proper accountability of accounting section where   relationship is distinctly legal. The taxation of financial gain generated through a venture and later it is dividends (as a shareholder).There is conjointly a reasonably sizable tax play.  Addition to this there is equal taxes, credits income expenses, exemptions.

Legal Stuff

Joint Ventures stands with compete legal terms where an investor has restricted liability. The legal documentation is to sustain and manage an organization where partnership or venture is distinct and distinctive with little overlap. A venture agreement has common Partnership Agreement and a common Shareholders Agreement.

Banking

 In Joint venture agreement, one party is appointed to carry legal title and acquire the mortgage finance which is necessary for the acquisition of real estate property. Interestingly, the legal venture relationship isn’t disclosed to the loaner. Such a meeting and set of facts is taken into account by virtue of the venture.

Anticipate Disputes

To avoid disputes and conflicts proper mechanism should be followed. Joint venture agreement should also provide for either arbitration or mediation. By means of clear language in the joint venture agreement can be followed.

  • The amount is to be shared by the Members in proportion to their respective Capital Contributions. Each Member has equal amount and equal Member's Preferred Return.
  • An equal amount to Unreturned Capital needs to be shared by the Members in proportion to their respective Unreturned Capital Contributions.
  • Balance, if any, 60% to the Capital Member and 40% to Developer Member.

Distinguish the Potential for Additional Capital

Often Real estate developments need more capital than its initial budget and it only happened due to lack of unclear language.  In the JV agreement unexpected capital can lead to major disputes between the capital and developer members.

Conclusion

 In joint venture, during the construction phase of a real estate development, developer member has to execute both the construction loan guaranty and a completion guaranty. The construction requires proper fund construction which overruns; hence the members must decide how to treat any overrun payments. However, Joint ventures are an excellent means to combine the complementary strengths of a developer and equity source.

 


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