Joint Venture
A joint venture is a business arrangement between two or more parties whereby they combine their resources to achieve a business goal or to perform a specific task.
As a party to a joint venture, you will pool your resources and efforts together to accomplish a common goal whilst still remaining independent. Furthermore, your partnership with the other parties will be accompanied by a specific contract. This contract will usually be a joint venture agreement. To learn more about joint ventures, you can visit this link.
Real Estate Joint Ventures
Essentially, a real estate joint venture is a venture between multiple parties to undertake a real estate project. The parties will combine their resources and work together to achieve that project. Usually, a real estate joint venture will consist of a capital partner and an expertise partner.
- Capital Partner – invests the capital and aids in financing the overall project.
- Expertise Partner – provides the technical expertise needed to build or complete the project (management and operating duties).
For example, the capital partner may be a foreign company intending to gain presence in the domestic market and the expertise partner is a real estate company in the domestic country.
Joint Venture Agreement
A common real estate joint venture structure is where the parties form a new limited liability company using a JV agreement. The JV agreement will often govern the parties relationships, rights and obligations and the overall objective of the joint venture. There are a few important components to include:
- Capital contribution – how much each party contributes to the joint agreement.
- Distribution of profit – how profits are distributed (e.g. 50/50 or 30/70).
- Management rights and control – who is appointed as the directors, who controls which aspect of the venture, etc.
- Remedies – remedies as to breach of contract terms or rights.
- Exit strategies – mechanisms for exiting the agreement when the venture is completed.
Why Real Estate Joint Ventures?
There are many reasons for going into a joint venture to undertake a real estate project. One party may have the requisite capital but not the expertise to make it into a reality. For example, Ping An (Chinese insurance company) entered into a JV with Mirvac (Australian real estate company). In this case, although Ping An has the capital, they formed an alliance with Mirvac as Mirvac has the expertise to use that capital to make the real estate goal to a reality. Furthermore, Ping An will have entered the Australian market with the aid of a leading company. As a result, the risks involved in transition and exposure to an unfamiliar market is greatly minimised. This is often beneficial if foreign companies intends to expand to an emerging market that is volatile. This way, the parties will share costs and risks.
To read more on the advantages of joint ventures, you can visit this link.
Examples
- Mirvac and Ping An to develop residential apartments.
- Lendlease Samsung Bouygues to develop the mainline tunnels of WestConnex M4-M5 link.
- Lendlease and CIMIC to develop the Western Sydney Airport.
- Scentre Group and Perron Group to manage and operate Westfield Burwood.
Final Thoughts
A real estate joint venture is essentially a venture between multiple parties to undertake a real estate project. This can range from developing toll roads or residential developments. A joint venture allows companies who has the capital (money) but not the expertise to make the business objective into a reality. It allows companies with different expertises to combine their resources and knowledge into one to deliver a mutually beneficial product. To minimise your risk, you can consult the various joint venture lawyers Lawpath has to offer in its Lawyer Marketplace.
