![]() ![]() ![]() When the entity is set up correctly, neither partner is unclear about their duties in the agreement, nor do they try to overstep boundaries. The contract is typically set to expire after the full agreed-upon/estimated return is delivered, therefore partners don’t have the option of exiting the partnership until this time. When drawing up agreements, the members include detailed buy and sell agreements should one member decide they want out of the investment, or dies.Īlso, exact expiration dates are written into the contract, which typically revolves around when the asset is slated to deliver the agreed-upon returns for both parties. Also, it benefits the LP by giving them peace of mind that the GP, who manages the assets, will hold up their end of the deal.Ī solid contractual joint venture is never in jeopardy of dissolving because it can’t, by law. It benefits the GP because they have the opportunity to get much more significant returns relative to their initial investment. It also ensures all joint venturers meet their obligations. Including incentives like these in the agreement is essential for any venture to function smoothly. Although there are many benefits of a joint venture agreement, there are four main benefits.Įvery strong partnership agreement is set up with performance incentives for the general partner called promote structures or carried interest. However, if a joint venture agreement is rushed and not thought through, it can have devastating consequences for the venture and the partnership. If the deal is sound, it will operate like a well-oiled machine and benefit all parties involved. 4 Benefits of a Strong Joint Venture AgreementĪ strong agreement is essential in a commercial real estate deal. An LP is the source of the additional equity, which can come from several different sources. The GP is more often than not a local developer or investor with fixed capital who’s trying to get into one or multiple big-money real estate deals totaling up to and over hundreds of millions of dollars. In commercial real estate, the primary players in a joint venture agreement are a general partner (GP) or sponsor and a limited partner or capital partner (LP, CP). CRE joint venture agreements commonly take the form of a limited liability company (LLC), but they can take other forms if there is a perceived advantage. In commercial real estate, joint ventures are always set up as their own entity, outside of any other business activities or entities in which the members might be involved. They share an obligation to one another within the venture that is outlined in the agreement.įor some industries, joint ventures can resemble partnerships or mergers of companies. ![]() Each member of a joint venture creates an agreement that is binding by law. However, what remains the same, regardless of industry, is that the key players in a joint venture must ensure their best interests are considered. It’s not used to enhance or broaden the overall business of either party this is where strategic alliances and joint ventures get confused. The key difference within the CRE realm is that a joint venture is always established with the goal of seeing a return on investment (ROI). In the world of joint ventures, commercial real estate stands apart. Now let’s discuss the ins and outs of joint venture agreements as they relate to commercial real estate and financing. In previous articles, we’ve gone into depth about the types of joint ventures and joint venture equity.
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