What is a Joint Venture?

May 3, 2022

As more and more Real Estate development projects are popping up around the current market, it is very important to realize that many of these projects are actually the efforts of a Joint Ventureship rather than just one company going all in. Even large real estate corporations who develop bigger scaled projects choose to partake in these Joint Ventureship because of the many benefits that they hold.

These Joint Ventures are partnership agreements between two parties where they each can take on a critical role in the Real Estate process that the other party may have needed support with, so they agree to work on it together in order to share the costs, risks, and benefits associated with successful completion of the project.

The goal of each party is to work with an outside group that will best compliment their business model. For example, say that one major corporation such as Blackstone were to tap into a market that they have never worked in before; a Joint Venture with a successful development company within this market can become very valuable even for a company that’s as big as Blackstone.

This is because while Blackstone will likely bring forward the capital and resources to continue with development, this second party adds value by bringing forward the expertise and knowledge of working within that unknown market which is exactly what is needed in order to prevent major mistakes during the building process.

On the flip side, this development company joining forces with Blackstone also benefits massively from the exchange. The main reason for this is that it gives them the opportunity to work on a much larger scale with deeper pockets, meaning they are taking on projects worth much more money which is great considering that they are still sharing some of that risk.

Preventing Issues in a JV:

While it may sound stressful and difficult to expect a partnership with some random outside party to run smoothly with no issues, a solid foundation of expectations between parties during the negotiations and contractual agreement is essential in making sure these issues do not arise in the future.

Having a clearly set plan that both sides can sign and agree on with important topics such as capital, work distribution, profit sharing, and ownership stake being clearly stated and taken care of will save time in preventing disputes in the future.

When it is a situation where one bigger company is partnering with a smaller one, there should also be a clear understanding of the quality of work that both sides offer so that there are no disputes of standards not being met.

Choosing Companies to Work With:

It is also crucial to make sure that this company you are choosing to move forward in a Joint Ventureship with is credible and capable of taking on whichever proposed project you set forth. When two companies come together to form this venture, it is because they are confident in the other's ability to successfully complete the project.

This confidence may come from seeing the finished products of projects they have completed in the past or it may even just be instances where these two parties have already worked together and found success so they decide to keep this momentum going to complete a brand new development project.

Continuing on, another massive benefit of these joint ventures is that if you do familiarize yourself with this other company, they can help you out on aspects outside of the initial project such as connecting you with retail tenants or other companies to work with.This goes to show the importance of networking within the market and industry because of the future opportunities that they can bring.

It may also be thought that due to the pandemic these past 2 years, these Joint Ventures may have paused due to a slowdown in developments. This is actually not the case and we see many new JV’s being formed especially in the hot Single Family Rental property market. With the SFR sector being so hot currently as families are moving around for jobs and home prices being so high, this gives larger companies the opportunity to tap in and take advantage of this hot market.

One massive company recently that has taken this step is Tricon who have made a Joint Venture agreement with three other investors worth a total of $5 Billion to acquire over 18,000 of these Single Family Rentals. Overall the pandemic has not made a negative impact on Joint Ventures around the industry as the market sentiment is still that more homes are in demand.

This is just one example of larger companies working together with partners where both sides can profit. In all, these Joint Ventures are excellent opportunities to work with other parties that have similar goals and give each other the chance to gain market power and find success on larger scale projects that they may not be used to alone.

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