What is Joint Venture Financing?

A joint venture is normally a relationship between a developer and an investor (or consortium of investors), where one party has the expertise and the other has the financial means to back the project. The arrangement is generally for a single large scale development project where both parties share the profits, losses and the operations. Together, both parties complement each other and benefit from the joint venture.

How does it work?

Joint Venture Financing is available for commercial real estate and the development of large scale projects. This is not a loan; instead it is an arrangement between the developer and the investor where the investor funds the project and on completion of the development, the profits (or losses) are shared. This means there are no interest payments during the term of the investment.

The developer is required to place a cash deposit of up to 10% of the project cost in an account as a compensatory balance. The cash deposit will earn interest at a rate of between 9-12 % and is not subject to the success of the venture. At the end of the project's stabilised period (normally 4-6 years) the completed development is either sold or refinanced in order for the investor to be repaid.

The investment fund does not charge a Due Diligence fee before funding. However an important part of the due diligence is analyzing the future value of the "as completed" appraisal, done by a 3rd-Party MAI (Member Appraisal Institute) appraiser.

This appraisal will forecast the future value of the project at stabilisation. The vital question is how much at the end of 4 to 6 years can the project be refinanced for, assuming, for example, a 70% loan to value ratio (LVR)?

What Do I need to do?

You will need to provide a prospectus and a detailed list of previous development projects, value they sold for and demonstrate your financial strength.

In addition to this, you may require:

Development Approval (DA)
Environmental Permitting Regulations (EPR), an Environmental report may be required when constructing on a site that may have been contaminated, ie where a petrol station existed, where hazardous goods were stored or where any environmental issue may have occurred.
Feasibility Statement - at the very least this statement should demonstrate that there is sufficient demand for this product/service and it can be provided on a profitable basis.

Criteria:

The development/new construction is 'shovel-ready'. (ie ready to break ground within 30 - 60 days of approval)

The project has sound market fundamentals

The development team has experience in developing this type of project and also has a significant financial stake in the project (ie, land etc)

Project types

Commercial Real Estate (no 100% residential projects)
Hotel Resorts and Casinos
Alternative Energy (solar, wind, geothermal, hydro, biomass, waste conversion, etc.)
Hospitals and Health Care Facilities
Infrastructure (roads, highways, rail, etc.)
College and University Buildings
Public-Use Facilities
Recreational Facilities
Retail
Industrial
Mixed-Use Commercial
Office
Other Related Types