Basic Joint Venture Structure: How big projects get started
A well structured joint venture uses the strengths of its participants to achieve more than they could individually. Here is an example of a typical structure we see:
Will has special knowledge on developing and managing retail centers. Will’s goal is to raise $100,000,000 to develop a string of centers. Will finds a lender who will loan $70,000,000, provided Will raises the additional $30,000,000. Will sets up a limited partnership, makes his company the general partner, and then sells limited partnership interests to investors to raise the additional $30,000,000.
One of the key benefits to such a structure is it allows a common ownership group to acquire a sizeable portfolio. Management can use economies of scale to increase returns and to operate the facilities more efficiently. Establishing the portfolio also may create an opportunity for premium on a portfolio sale to a larger investor or group.
If you are considering creating or investing in a joint venture project, seek the advice of counsel. There are a large number of securities laws and other rules governing the structure, sale, and marketing of joint venture arrangements. Joint venture deal risk increases substantially when not structured properly.