Last Updated on December 19, 2022 by Anda Malescu
Understanding how does joint venture work in real estate can help entrepreneurs develop and finance commercial or residential real estate projects. In fact, most real estate projects are completed through a joint venture.
A joint venture in real estate involves two or more parties working together and compiling resources in order to develop a real estate project
Joint ventures allow real estate developers and those experienced in managing real estate to work with firms that provide capital for real estate projects. For example, company A owns a plot of land in Miami, Florida and is based out of Los Angeles, California. David lives in Miami next to the plot of land owned by Company A and has been managing commercial real estate for the past 10 years.
Company A now wants to develop the plot of land and build office space in downtown Miami. To develop the real estate project Company A enters into a joint venture with David where Company A provides the financing for the project and David provides the commercial real estate expertise.
In general, the joint venture in real estate, whether incorporated or unincorporated, is comprised of two players – a real estate capital provider and an operating member. The operating member handles the day to day operations and manages the real estate project. Typically, the operating member is an experienced professional from the real estate industry with the capabilities to source, manage and develop a real estate project.
On the other hand, the real estate capital provider is typically a capital fund that specialized in financing real estate deals. The capital provider does not necessarily operate in the real estate industry, but it often specializes in real estate. The capital member usually finances most of the project or even the entire project.
Aside from this, a joint venture in real estate can also be used for securing financing for an international real estate project
It allows businesses based in different parts of the world to come together and participate in real estate investment projects that they would otherwise not be able to join. For example, Company A invests in real estate and is headquartered in Miami, Florida. Company B is a real estate developer in Madrid, Spain. Company A wants to invest in international projects and Company B is in the process of developing real estate in Barcelona. A real estate joint venture allows Company A to invest in the project developed by Company B in Barcelona, Spain.
In real estate joint ventures, the members are independent from each other and the joint venture is separate from the members’ other business. However, the members are liable for profits and losses relating to the joint venture.
The key aspects of how does joint venture work in real estate include:
- Distribution of profits. From the outset, the members of a joint venture in real estate should provide how the members will distribute the profits generated by the projects.
- Capital contribution. The joint venture members should specify the exact amount of capital they agree to contribute.
- Management and control. In real estate, the joint venture agreement should specify how decisions are made and the rights and obligations of each member regarding the management of the real estate joint venture project.
- Exit mechanism. The real estate joint venture should provide terms on how and when does the joint venture ends.
Contact us or schedule a consultation your international business attorney in Miami, Florida USA to help you plan and execute a real estate joint venture.
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