Real Estate Articles
Considerations in Selecting a Joint Venture Partner
Written by Brent Pace for Gaebler Ventures
When you form a joint venture on a real estate project, you are picking a partner that could last a very long time. Here are a few things to think about as you select a joint venture partner.
Some times you simply can't complete a real estate acquisition or development project on your own.
There are very few companies out there that excel in all phases of the real estate project cycle. Joint venture partners, however, can last a very long time. In order to pick a good joint venture partner, you need to consider what the partner brings to the table. There are six main phases of a real estate development cycle. Before you pick your joint venture team, make sure your partner(s) has expertise in at least one of the following areas to bring to the table.
1. Finding work. In a hot economy, this item tends to get forgotten about. In a recession, finding work is everything. If you have a joint-venture partner with a knack for digging up projects to work on, that in and of itself provides value. Whether they simply possess the vision to know where to develop, or they are well connected, it doesn't matter. If you can't find a project to work on you will go out of business.
2. Getting selected for the work: resume. As a small entrepreneurial venture, sometimes people will be skeptical of your ability to complete the job. Forming a joint venture with a large, established development company can bring a lot of value to the table. It may feel like you're giving value away by partnering with an outside company, but if their extensive resume will give you the opportunity to get some deals, you should consider it.
3. Getting selected for the work: network. In addition to the resume factor above, don't discount the networking factor. Some joint venture partners are well connected politically and have the ability to steer work your direction based on their connections from previous jobs. This type of skill brings a lot of value as well and is worth consideration for partnering.
4. Financing the work. As a young company, you may have a very thin balance sheet. Many joint venture partners will bring only financial prowess to a deal. This can be extremely valuable, especially in markets where you can't get very much in terms of loan-to-value. Some joint venture partners could be Private Equity institutions, but others might simply be high net work individuals or people with good relationships in your local lending community.
5. Constructing the project. Believe it or not, there is a shortage of people who can actually complete work out there. Lots of people like to flip projects, but few get them built. If you don't have this skill, acquiring help to get it done is imperative. Many respected development companies have project managers who can help you where the rubber meets the road if they are included as a joint venture partner.
6. Operating the project. There are many operating companies who will manage your project for a fee. However, if you have a joint venture partner who, among other things, has the ability to perform in-house management, you may want to take advantage of it.
Brent Pace is currently an MBA candidate at University of California at Berkeley. Originally from Salt Lake City, Brent's experience is in commercial real estate development and management. Brent will have tips for small business owners as they negotiate their real estate needs.
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