A Complete Guide to Joint Venture Property Development Finance
Joint venture property development finance is a popular concept within the real estate realm in the UK and around the world as well. Oftentimes when the developer is unable to arrange the required funds for a particular project or needs emergency financing, midway through the same, they seek out partners (one or more) to raise the capital.
The joint venture collaboration offers access to the needed resources and funding from respective partners and helps in well-timed and effectual execution of the development project. In this article, we will walk you through the basic overview of joint venture property development, its financing aspects and the overall advantages.
Define Joint Venture Property Development Finance
The Oxford dictionary defines joint ventures as a commercial venture that is jointly undertaken by two or more partners that maintain separate identities otherwise. In case of joint venture property development finance, an arrangement is made between the partners to pool their resources for funds acquiring and achievement of a specific set of objectives concerning the project. One can access up to 90% of the project development finances through joint ventures.
Potential Reasons for Joint Venture Property Development
Joint ventures in the business world come in various forms, and there are multiple reasons why it is chosen as a preferable option. For property development projects there are mainly three reasons why developers seek partners to execute a project.
Finance Issues
Lack of depletion of funds is one of the most common reasons for joint ventures in property development. Being a capital oriented industry, a significant percentage of the funding needs to be advanced, irrespective of the scale of the project. It is a great option for new developers who more than often lack in equity for the initial projects.
Land Formalities
A developer might have a great project idea, but face difficulty in unlocking land opportunities, that is the foremost priority in any development project. In times like these that one can team up in a joint venture to secure the land title for the property development plans to take off.
Skills and Resources
The success of a property development project depends on the skill-set of the developer. One might be in the industry for years, but come short-handed in terms of resources for a new project. Seeking help from one or more partners in the areas lacking creates the premise of joint ventures.
A successful property project is the amalgamation of all of the above; land, developmental skills and adequate financing. If either of the requirements falls through, it calls for the forging of a joint venture.
Advantages of Joint Venture Property Development Finance
Joint venture property development finance has become one of the most popular methods of securing capital, owing to its multitude of benefits:
- It is suitable for both small and large scale projects, usually starting from £300K to £20 million and more
- In most cases 90% of the upfront development costs get covered by joint venture financing, sometimes even 100%
- The entire project fund is secured a consolidated source, ensuring a forthright repayment process of the debt
- The developers in a joint venture partnership are allowed to roll-up the interest and pay the amount as the end of the finance term, reducing ongoing costs of the project
To summarize it, joint venture project development finance is the smart way of acquiring funds for a project to ensure that there are no restrictions of capital or shortfall midway. Moreover, it not only takes care of the funding but with the help of the partners a developer can also avail better resources, skills and the choice of land.