Joint Venture (JV) Development Finance

Joint venture development finance is one of the many ways to fund a property development project. It’s one of the quicker ways to raise the capital you need, with certain costs kept to a minimum because of the simplicity of the financial arrangement.

If you’re wondering if this type of financing is right for you, read on for more details and find out how to speak to an industry expert.

We’ll tell you…

What is joint venture development finance?

It’s a type of financing available to property developers to fund construction projects. With joint venture development finance, the lender puts in 100% of the capital to cover all the costs (site acquisition, construction, professional fees, etc.) in return for a pre-agreed share of any profits from the resulting sale.

So, unlike most other types of property loans or development finance, the borrower doesn’t need to have any of their own funds to put in as a deposit. They can get a project up and running quickly without the need to raise upfront capital.

In exchange, the lender receives a share of the profits of the project – usually between 40% and 50%. The interest rate they charge will also usually be higher than it would be for other types of property financing.

How it works

Lenders will look for developers and projects that they believe in, and feel will be profitable. After closely examining the business plans, they’ll agree to fund the project with 100% financing.

The lender and the developer will enter a partnership and establish a special purpose vehicle (SPV), which is a legal entity designed to hold projects like these.  Through the SPV, the lender will release funds in stages, in alignment with the project plan.

The lender will typically carry out an inspection at the end of each stage to confirm that the project is on track before they release the next wave of funding. Projects typically last up to 24 months.

After the project is complete, it is usually sold. This allows the developer to repay the loan and interest, and the lender and developer will split the profits as agreed in their contract.

How to apply

If you’re interested in applying for this type of finance there’s a few simple steps you can take to make the process much more straightforward:

Step one: Find a broker

Joint venture development finance is offered by a limited range of specialist lenders and is only available to a specific type of borrower. So, the best way to find a deal is to speak to an expert in this type of financing.

After discussing your plans, your broker will tell you how likely you are to be able to secure this type of financing, and may also discuss other options with you to ensure this is the best fit for your needs.

If you get in touch we can arrange for a broker we work with, who has experience in this specific area of finance, to contact you directly for a free no obligation chat.

Step two: Prepare your case

You’ll need to prepare a strong application to be in with a chance of securing this type of financing. Lenders will want to see:

Your industry experience

While first-time developers may be considered, your application will be treated more favourably if you’ve successfully completed similar projects in the industry. Borrowers with years of experience and a strong track record are preferred.

Planning permission

You’ll usually need to have planning permission already in place before a lender agrees to fund your project, as it could otherwise fall through before it even begins.

Your exit strategy

Usually, your exit strategy for joint venture development finance will be the successful sale of the development or individual properties. You’ll need to outline the exit strategy and prove its viability, preferably with evidence, such as an agreement in principle.

Profitability forecasts

Since lenders will be taking a share of the profits of the project, they’ll want to see a forecast of how much that will be. Lenders usually have a minimum gross development value, which could be £1 million or £2 million. They’ll also want to see a profit margin of at least 25%.

Your credit history

While a clean credit history isn’t necessarily essential for this type of financing (your exit strategy and profitability forecasts will be much more important), it’s still something lenders will look at.

Step three: Find a partner

Your broker will identify the right lender based on their lending criteria and the type of projects they usually fund. You’ll present your case and, if you’re a good fit for a lender, you will probably get a decision in a couple of days. Your broker can also help you to negotiate the rate and terms.

Alternatives to joint venture development finance

The main downside to joint venture development finance is that you will have to split the profits at the end of your project. If you decide that you don’t want to do that, there are other ways to raise 100% of the capital to fund a development project.

The main alternative is to use other property or assets as security for the loan. If you have a property portfolio, for example, that might work for you. However, if your project fails or stalls, your other properties will be at risk of repossession.

Speak to a joint venture development finance expert

You probably have questions about joint venture development finance that you need answers to before you’re ready to proceed. We work with numerous experts in this field who we can connect you to for a free, no-obligation chat.

First, we’ll need to know a few details to ensure we’re matching you with the most appropriate person. If you’d like to get started, simply call 0808 189 0463 or make an enquiry online.