Joint Venture Funding
A Joint Venture (JV) is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. There are other types of companies such as JV limited by guarantee, joint ventures limited by guarantee and with partners holding shares, but generally speaking in a JV, all parties are equally invested in the project in terms of money, time, and effort to build on the original concept. While joint ventures are generally small projects, major corporations also use this method in order to diversify. A JV can ensure the success of smaller projects for those that are just starting in the business world or for established corporations. Since the cost of starting new projects is generally high, a JV allows both parties to share the burden of the project, as well as the resulting profits.
With all this in mind Viking is experienced at setting up JVs' and has done so on many occasions. A good example of our ability to establish successful joint ventures in recent times occurred recently when an experienced Queensland-Based Developer, seeking land & construction funding for the proposed land sub-division project located in Ipswich QLD, approached us looking for high LVR debt funding. On assessment of the proposal to acquire the land we noticed an equity gap between the highest level of debt available for the project in the current market against and the level of equity that could be provided by the Developer. Clearly there was going to be a shortfall in equity and we advised the Developer accordingly.
Based on the advice received at that time the Client elected to engage Viking to seek equity funding to assist with the acquisition of the land and provision of construction funding as the proposed development site remained under option at a favourable price and any undue delay in raising the funds to purchase the land would have seen the opportunity lost to another buyer. After around 3 weeks of preliminary interviews Viking was able to locate a Third Party Investor interested in the project, and rather than a straight equity investment we suggested that a Joint Venture be formed between the parties whereby the Third Party Investor contribute $700K of cash equity into the deal and that the Developer be retained to project manage the roll-out of the sub-division plus contribute another $200K providing a 70% profit share for the Third Party Investor and a 30% equity share for the Developer. All parties agreed resulting in the immediate provision of $700K from the Third Party Investor allowing for the all-important approval of a $7.8M Land & Construction Loan from a Brisbane Based Managed Mortgage Fund.
So if you have a project which shows demonstrated returns but you need someone with a stronger balance sheet than yourself to participate in the project why not call us today so we can arrange a successful partnership for your next property development.