Joint Venture Real Estate
Joint ventures typically involve two parties, the sponsor or General Partner (GP) and their equity investors or limited partners (LPs), combining resources for the development of a real estate investment. The relationship between the parties is often regarded as a “marriage of convenience,” whereby each party is providing something the other doesn’t have. In joint venture real estate deals, the sponsor is generally a real estate expert or developer in charge of managing the everyday duties of the development, while the limited partner is a capital member financing a large portion of the project. The sponsor also has a deep wealth of knowledge on the local market and asset class the joint venture is investing in.
In this type of partnership, both parties remain separate entities, only liable to one another as far as the specific real estate project is concerned. Upon completion of the goal set out in the joint venture agreement, the partnership is dissolved.
Joint Venture Agreements
Real estate joint venture agreements can fall under a number of different legal structures, most popularly a Limited Liability Company (LLC). The purpose of these agreements is to lay out each partner’s responsibilities and obligations, the objectives of the partnership, and rights to profits. It is critical that proper care is put into drafting agreements in order to avoid disputes and maintain productivity throughout the duration of the partnership.
For joint venture real estate investments, the responsibilities of the sponsor might include day-to-day operations, property management, and forming leasing agreements. On the other hand, the limited partner might be obligated to raise additional capital contributions, approve budgets, or maintain cash flow.
The Bottom Line
Real estate joint ventures are temporary partnerships capitalizing on the combined resources and expertise of two or more parties. EquityMultiple enters a joint venture as the limited partner for every investment offering available on the platform, providing individual investors the opportunity to take part in a commercial real estate transaction. As a capital partner, EquityMultiple performs careful due diligence when deciding to work with a general partner both at the deal level and the sponsor level.