Joint Ventures in Commercial Real Estate 

A joint venture (JV) in commercial real estate refers to a business arrangement between two or more parties to collaborate on a specific real estate project. JVs are prevalent in the real estate industry, especially when large-scale projects necessitate pooling resources or expertise. 

Types of Joint Ventures in Commercial Real Estate 

• Entity Joint Venture: Two or more entities (like corporations, partnerships, or LLCs) come together to form a new entity to undertake the real estate venture. This new entity holds the real estate and the associated responsibilities. 

• Contractual Joint Venture: No new entity is formed. Instead, the parties agree via contract to collaborate on the real estate project. Their rights and obligations are defined by this contract. 

• Equity/Non-Equity Joint Venture: In an equity JV, all parties invest capital into the venture. In a non-equity JV, instead of contributing capital, a party might provide services, expertise, or other non-monetary resources. 

• Ground Lease Joint Venture: One party owns a piece of land (the ground lessor) and leases it to the joint venture. This JV then develops the land. Profits from the project are typically shared between the landowner and the JV parties. 

Key Elements of Joint Ventures 

• Purpose and Objective: Clearly define the purpose of the JV. Is it for developing a mixed-use development, an office building, or another commercial property? 

• Capital Contributions: Detail how much each party will invest and when. Are there provisions for additional capital calls if the project needs more funds? 

• Profit and Loss Distribution: Define how profits and losses will be shared. This might be in proportion to capital contributions or another agreed-upon ratio. 

• Management and Control: Decide who will manage the JV. Will it be one of the partners, a third-party manager, or a committee? Outline their powers and responsibilities. Will management be subject to potential removal? 

• Decision Making: Explain how decisions will be made. Do all parties have an equal say, or are some decisions reserved for specific parties? 

• Duration: Specify the lifespan of the JV. Will it last until the commercial property is built, leased out, sold, or another milestone? 

• Exit Strategy: Clarify how parties can exit the JV. Can they sell their stake? If so, how is the stake valued? Can they force marketing and sale of the property? What happens if a party wants to leave or if there’s a dispute? 

• Dispute Resolution: Lay out how disputes will be resolved. This can be through mediation, arbitration, or litigation. How a dispute is resolved may differ based upon the nature of the dispute. 

• Termination: Explain the circumstances under which the JV can be terminated. This can be at the end of its duration, upon the completion of the project, or due to other reasons. 

Takeaway: 

Joint ventures in commercial real estate provide a flexible framework for entities to collaborate on projects, share risks, and pool resources. They offer various structures to suit the specific needs of the project and the parties involved. Whether you’re looking to collaborate on a new project or invest in commercial real estate, understanding joint ventures is crucial. 

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