Joint ventures offer capital raising benefits – unlike a second market-back mortgage or mezzanine loan – mainly because of the lower cost of capital. The joint venture agreement must meet each investor`s risk/return expectations, but the joint venture`s capital will only be expensive if the project is financially successful. The company can then afford a premium distribution. More importantly, joint ventures are more likely to meet the capital requirements of the first mortgage lender as second-year students or mezzanine loans. This means that the co-owner (or whoever drafts the proposed agreement) has great flexibility, for example to define how the joint venture should be taxed (. For example, a partnership or a taxed entity at the corporate level), what types of contributions, types of governance, distribution, dissolution and dispute resolution are. The only limits are those of the law and there are very few contractual conditions that may not be enforced because of the illegality. Tax law is, of course, a priority. From the outset, the tax should also be an important aspect of exit planning, in order to allow an efficient and optimized exit in the event of dissolution or termination of the joint venture. It is customary for an investor, with the experience to manage it, to need a private equity partner to achieve this. It is a common situation of a joint venture. There are many others that involve more than the need for money.
Mezzanine financing is also trending, which means that a real estate portfolio can be heavily financed by borrowing. Higher debts can be provided up to 65 percent value credit, then mezzanine debt will be injected in case of structural subordination higher in the capital structure with an increased risk profile. 2019 JanuaryStart of IPSX – the first and only commercial real estate exchange – /-95% Typical participation of an investor in a real estate JV The specific structure of the joint venture agreement is defined by the company`s statutes. Each partner of the joint venture will have shares in the new company. However, a joint venture may also include a sponsor of a development company that aggregates the necessary equity from other investors, while generating, and perhaps other companies, expertise, contractual rights, project approvals, services and perhaps even a small capital for the company. A joint venture can also be created for part of a real estate development project, for example. B, demolition or planning phase.