8 Steps To deliver a winning real estate joint venture.
Are you a Property Developer, Land Owner, Real Estate Financier, Architect, Engineer, or Contractor?
The last 5-years have seen a robust Kenyan real estate sector with a return exceeding 20.0% p.a for investment-grade real estate. This has attracted the global interest of Kenya as an emerging market and this has seen the development of an amazing array of commercial buildings, schools, hotels, villas, mansions, and apartment complexes among others.
The successful development of any real estate project is complex and requires many inputs and many hats. Sadly, it is very rare to have all the inputs and the expertise required to deliver a winning and successful real estate project.
- Real estate is capital intensive. Execution requires very deep pockets.
- The project cycle is long and a minimum of 2 years from conception, design, build/construction, sale of units, etc.
- You required investment grade land that is rare or lacking
- The project process is complex requiring licensing, and expertise
- At the very least you require Long Term Finance, Technology, Ideas, Connection, customers among others.
A Joint Venture (JV) is one way to bridge the gap and enable one to tap into the immense opportunity offered by Kenyan Real Estate. What is a Joint Venture? A joint venture (JV) is a business arrangement where two or more parties come together to undertake a real estate development or project by pooling resources. The resources include:-
- Land – Should be strategically located investment-grade land
- Conveyancing – Lawyers
- Design -Architects,
- Project Construction -Contactors,
- Project Management etc
- Finance – Bank or other financing structure
- Sales and Marketing of Real Estate Project
Liberty Homes can scope and bring together the right partners for a successful Joint Venture
Is A Joint Venture Right For You?
The simple answer is it depends.
A joint venture has many benefits but is also laden with many challenges.
A Joint venture will allow you to access vital inputs and components that may deliver a successful real estate project.
Any yes answer to the following questions means a Joint Venture is right for you
- Do you have PRIME land to develop but no capital?
- Do you want to access capital or technology, or ideas to develop the land?
- Do you have Capital/Financing and/or need partners to develop a real estate project?
- Do you have a “great real estate idea or concept” that will have amazing success and want to access partners with Capital or Land for real estate projects?.
Liberty homes can enable the creation of successful joint ventures between diverse partners that have one or several of the required inputs for a real estate project. We connect Developers, Land Owners, and Land Bankers, Real Estate Financiers, Clients, Architects, Contractors, Banks, and other players. Consider working with Liberty Homes as your partner for all types of Joint Ventures( JV)
Our 8 Steps Joint Venture Process
The following are the steps we follow in our joint ventures;
- Project Appraisal – This starts with a site visit and assessment to identify the location of the property, its accessibility, the availability of infrastructure, the soil type, the terrain, and other factors that affect development. The developer will then conduct a feasibility study to establish the best use of the property, project costs, revenues, and the resulting potential returns from such an investment,
- Project Proposal – The developer will then come up with a proposal for the landowner showcasing the proposed concept, the budget, the revenues, and the profit-sharing between the two parties,
- Legal Due Diligence – When the landowner accepts the developer’s proposal, they are required to avail copies of the land title deed and deed plans for verification by the developer’s advocate. The advocate will conduct a search to establish the authenticity of the title deed, true ownership, and that the land is free of any encumbrances. A surveyor will then be engaged to verify the beacons on the ground and confirm acreage on the title compares with the one on the ground,
- Signing of Agreements – Once due diligence is complete and is satisfactory the developer drafts a Joint Venture Agreement (JVA) and sends it to the landowner’s advocate. Of the many challenges inherent to a JV, an agreement outlines all possible scenarios that might be a source of conflict and forges a path forward in the event that anything does not go according to plan. The following are some of the common clauses found in a JVA:
- The capital obligations of each party,
- The partnership management structure,
- The rights and responsibilities of each party,
- Exit rights and transfer rights with respect to the sale or transfer of membership interests in the JV,
- The downside protection for the land value contributed by the landowner, and
- The profit-sharing mechanism.
Both parties once they agree to the terms and conditions laid out will sign a JV Agreement.
- Formation of a Special Purpose Vehicle (SPV) – Upon signing of a JVA, a special purpose company is formed with the aim of fulfilling the objectives of the JVA. The company is registered as a Private Limited Liability Company (LLC) or as a private Limited Liability Partnership (LLP) at the registrar of companies,
- Transfer of Land to the SPV – Once the company is formed, the landowner transfers the land ownership in favor of the SPV,
- Project Commencement – The developer then begins the execution of the project through procuring of the project team including the architect, project manager, engineers, and other consultants. The developer oversees the project through to completion,
- Project Completion – Once construction is complete, the partners (landowner, developer, etc) share profits in accordance with the terms of the JVA, and the profits shared may be in form of cash or units such as houses or apartments.
Benefits of a Joint Venture
Joint ventures, if done correctly, can be a source of financial fulfillment for partners, and benefits include;
- Higher bargaining power and Increased Capital Capability – In a JV, partners can execute a very big real estate project. Everything starts with seed capital. Partners can then contribute capital, land expertise, etc, and then be able to access more sources including debt. This considerably expands its financial capability in capital-intensive real estate development. Furthermore, with seed capital, the partners are able to access debt capital easier as they have,
- Development expertise – The developer in a JV provides development expertise in terms of concept development, design, and project management; and oversees the project to completion. With the right partner, the landowner is relieved from the day-to-day hustle of supervising a project and assured of professional workmanship,
- Access to Sales and Market – Selling real estate is now as important as having the best designed and best-constructed project. Partnering with a reputable real estate firm like Liberty Homes will ensure the shorted and timely sale or rental of the real estate products (homes, apartments, etc) to the target market, This is Key to getting the best returns to a project,
- Access to partial liquidity for a landowner without having to sell the entire land – In a JV, the landowner can be paid something upfront so as to meet their cash needs without selling the land
- Preferred Returns – Landowners can get either a preferred or guaranteed minimum return. This will ensure that in the event that the project does not materialize, they do not lose the value of their land, and
- Shared risks and gains – Ultimately, a successful JV will generate the expected high returns for both partners. A partnership also enables the spreading of economic and other market risks that might result from undertaking any worthy real estate investment, and that would otherwise be borne alone.
The biggest challenge of any joint venture is getting the right partners and the right governance structure to manage conflicts. As you get into any joint venture, it is good practice to define your short-term and long-term goals, rights, and obligations and this will guide the design of the right SPVs that will ensure the protection of all stakeholders. Liberty Homes has now engaged in over 250 acres of joint ventures in the Nairobi Metropolitan Area.
For more information or to explore a JV for your project, contact [email protected]