Joint Venture Development Finance

And on this episode of the Bridging Finance podcast, we have Scott here from Propertyze to explain how joint venture development finance works. Thank you for joining us, Scott. How's it all going? Yes, very well. Thank you. And thanks for having me again. Oh, you're very welcome. Well, let's get straight into these questions that we've got here then. So first of all, and just an overview really here, what is joint venture development finance? And do you have any examples of this? Yeah, of course. So there's two different ways of describing this. The first one I'll cover off is finding a joint venture partner to help you with a project. So if you were to find an opportunity that you didn't perhaps have the capital to fund

yourself, finding somebody to become a business partner with you and providing that joint venture capital, and then going forward with the development finance is the first and probably the more common thing people are looking for. So essentially, it then becomes standard development finance. You just have a business partner involved with you from the start. That's the more common one I think people would be looking for. But the other option is where the joint venture partner is your lender. They develop that with you and take a shareholding and a share of the profit too. In essence, the whole thing works like development finance. It just, the structure, depending on how that JV partner is involved, will determine

the profit and how you share those profits, I guess. Right, okay. There we go. Brilliant. So let's just follow on with this next question then. How does joint venture development finance work? So what are the requirements and criteria here? So typically you'd enter into a joint venture agreement, which kind of outlines the contributions. They're probably bringing the capital. You're probably bringing the project. And maybe some of your own capital as well, depends on the circumstances, the roles, who's going to be in charge, what they're going to be doing. It might be that you want a silent partner, somebody who just provides capital, steps back and lets you get on with it. Somebody, or perhaps you want somebody who has experience in a particular sector.

So maybe you've gone from developing houses to hotels and you want somebody who's got some experience to bring to the table. So defining the contributions, dividing the roles, and then defining the profit sharing at the end of that agreement too. So the likelihood is that you'd rather refinance and buy either one of each other out. You may end up selling the project, splitting the profits. So detailing who's going to take what share of the profits as well. So that's probably the very first step to cover off with the joint venture partner. And then going back to kind of the first answer, depending on whether they are funding the entire transaction or whether they are just providing capital for you to use for a development

finance, the development finance product itself will work very similar to a standard dev product. Right. Okay. So clearly explained there, a clear breakdown. Thank you for that. So let's move on to this next question. When you get 100% joint venture development funding? It's possible, but rare. So going down the route of presuming you have a joint venture partner who is a partner, but not your lender as well. That's probably the more common thing we're looking for here. Development lending will cover 100% of the bill costs and most, well, a good portion of the land acquisition if that's required. So typically you'll see 50 to 60% loan to value on the land or the acquisition of the project or the bill costs.

That does obviously fluctuate depending on the profit and the deal and the size of the deal. To get 100% joint venture finance, you would probably have to cross charge other assets or your joint venture partner could bring something to the table to facilitate that entire lending. So it can be done. It just depends on who's involved, what's involved, how much lending you need and how we structure that. Okay. So lots of factors there involved and lots of points to bear in mind there. Now let's move on to these two questions. What are the exit strategies for joint ventures and what happens to the joint venture once the venture is complete? So exit strategies, typically one of two things, either sale or refinance.

Predominantly, I see a lot of people go down the sale route. They want to use a joint venture partner for the first two or three projects, build up their own equity and then go away and do the projects themselves without having to split the profits basically. But you can go down the refinance route and if the project finishes with enough value, you've created enough equity in the first place, it's possible that you can refinance and buy out your partner to pay back their equity and pay back any profit split that they are owed from that as well. But sale or refinance, the two options. Okay, there we go. So hopefully that's clear there. Now you might have touched on this a little bit in what you've said already, but what

are the benefits and the drawbacks of joint venture finance for developers? There's more benefits than drawbacks, in my opinion, most of the time. Having a joint venture partner will allow you to access projects that we have to have reached outside of your financial commitments currently. So allowing you to really scale up your business model, obtaining much larger projects from the start. They could also bring to the table more experience than you have in particular sectors or the size of development. So if you're going from building one or two houses at a time on a plot to wanting to build 30, 50, 100 houses on a plot, there's a very big difference in how those projects are managed. So having a JD partner who brings some capital to the table, but brings a wealth

of experience can make a big difference to the profitability of those projects. So there's a lot of benefits to having somebody involved. The drawbacks are obviously that you have to split, most likely split the profit with somebody. So depending on how much they're bringing to the table, they may want the line share of that profit. If they're going to bring all the capital and they're going to bring a lot of experience, they're certainly going to want a very large proportion of that profit and you're really getting profit for identifying the opportunity. So you won't make as much profit, but you've got a small slice of a much bigger pie. It's kind of one way of thinking of it. So it'll enable you to get that experience yourself and move on to your

own projects at a later time. So in my opinion, largely there's more benefits than drawbacks. Okay, brilliant. There we go. It's always good to weigh up those pros and cons, isn't it? But hopefully that's useful there. So people would like to know, are there any alternatives to joint venture property development finance? Yes, we can go down obviously traditional bank loans and private equity, we can go down kind of some grants with different types of depends on the projects, depending on what you're trying to do. If you don't want to use a joint venture partner to do these developments, then most of the time you're going to have to provide some form of asset to secure against to cover off the difference.

This could be your own home. It could be other buy-to-let portfolios. It could be if you have watches, cars, art that have value, we can lend a gift to those things to secure the difference. So we can piece it together in different ways, even contract finance or invoice financing, if you've got a business that has a trade, if you have a trading business. So lots of ways that we can cobble it together to cover off the difference if you don't have the capital for a project, but don't want to profit share with a partner. So very circumstantial depending on where you are, basically. Okay. Well, that's good news. Lots of different options there depending on your circumstances. So we've got one or two questions left.

So the next one asks, how does the application process for a joint venture development loan work and how long does this process take? So the development loan itself would technically be a standard development loan. So depending on the side of the project or the funding, of course, we are expected to have terms out to a client within 10 days. And then if we see what the project goes ahead, they buy the one they're often been accepted or is already owned, progressing through to formal terms and valuations within a couple of weeks from there. So full funding within six to eight weeks, approximately. One thing to bear in mind is that if you are having a joint venture partner involved with you, then you want to front load that

with probably two or three weeks worth of legal work. You want to make sure that your contract is watertight with that partner before going ahead and setting up the development loan. Be mindful there's probably some time at the front there to ensure you're secure and safe in the eyes of your lawyer before moving forward with the actual development. Okay, so a key point there to take away from the episode. Now, just lastly, really, Scott, and you've demonstrated this already. But how can a broker help here? Is there anything you'd like to add? Obviously, we can help with the development side of things, making sure we find the right lender for the right project, securing the best terms we can, negotiating what we need to,

chasing up legal, chasing up the value is changing through the lender, that sort of thing, making sure that the process is as smooth as possible. The other thing we can do is on occasion, some of our other clients will be looking to be to be to be JV partners. Excuse me, I'm a little teeth back in. Young twister there. I'd say, look, we found a project, but we want to partner with somebody. Do you know anybody? We do have clients who sometimes will look to do that as well. So we can sometimes make introductions. Okay, brilliant. There we go. Well, thank you for that, Scott. Hopefully that's proved useful to anybody listening to this. And I'm sure we'll catch you on another episode soon. Fantastic. Thank you very much.