Typically a joint venture structure is used when there is a small number of outside investors, or just one. It generally uses an SPV: a Special Purpose Vehicle, which is a private company that owns one or more properties. We can help you set this up, as we explain here.
Often the SPV has two classes of shares, A and B. The ‘A shares’ may be held by the developer (or by the developer’s founders or owners). The investors may hold ‘B shares’, which entitle them to an agreed share of profits.
A bank loan may not be needed, which is a big advantage of this structure. It’s also flexible, and can easily be adapted to a development’s particular circumstances. It can be tax-efficient too, as the SPV’s shareholders may benefit from entrepreneur’s relief or investors’ relief when the development is sold.
On the other hand, each investor’s terms must be individually negotiated, and investors will typically demand certain control rights over the SPV. This may include ‘step-in’ rights, which allow the investors to appoint a different developer if the project goes off track.