Real estate joint ventures

In the dynamic landscape of the UK living sector, real estate joint ventures (JVs) have emerged as a pivotal strategy for growth and innovation. With our new government's pledge to 'get Britain building again' we expect JVs to continue to rise in popularity with developers and investors, and it will be those successful JVs that will be integral to achieving the government's ambitious housing targets.

Charlotte Whitworth and Anthony Hunt introduce a JV series from the Corporate Real Estate team, exploring:

1. The rise of real estate JVs
2. The benefits and challenges of real estate JVs from an investor perspective
3. The benefits and challenges of real estate JVs from a developer perspective
4. The future of real estate JVs

The real estate market has faced significant upheaval following Brexit and the COVID-19 pandemic. Brexit introduced regulatory uncertainties and market volatility - the initial uncertainty surrounding Brexit led to delays in real estate transactions and development projects. Many investors adopted a "wait-and-see" approach, causing some deals to stall and leaving investors holding a significant amount of undeployed capital.

The economic fluctuations in recent years have made banks more cautious and stringent in their lending practices, making it harder to access debt funding and when central banks around the world raised interest rates to combat inflation, the cost of borrowing increased. The pandemic led to disrupted goods and services supply chains and altered demand patterns. However, the market is showing resilience. Investors are now increasingly focusing on stability and long-term growth, with a renewed interest in joint ventures (JVs) as a strategic approach to mitigate individual exposure and leverage opportunities.

Emerging Trends and Structures in Real Estate JVs

By Stephanie Brigg

Real estate JVs are evolving with the times with a notable trend in the rise of cross-border partnerships, driven by the need to diversify portfolios and access new markets to spread risk.

In addition, there has been a growing emphasis on repurposing existing assets, sustainable and green developments, and social value, reflecting broader ESG concerns.

Structurally, JVs are becoming more flexible, with tailored agreements that address specific project needs and investor preferences. This includes hybrid models combining equity and debt financing and innovative profit-sharing mechanisms.  Combining individual strengths under the joint venture umbrella enables the parties to participate in larger, more complex and/or more specialist projects that might otherwise be out of reach for them.

Most recently, the partnership between Dominus and Cheyne Capital has seen the real estate investor, developer and asset manager well known for its work in the alternative living and hotels sectors, collaborate with the global alternative investment funder on several significant acquisition and development transactions including student living in the City and their most recent acquisition of 65 Fleet Street.  Their projects show a strong focus on the creation of sustainable and community-oriented spaces.

Build-to-rent developer HUB is also at the forefront of the emerging co-living sector, and it recently announced its partnership with H.I.G. Capital to acquire Finsgate House, Old Street.  Their plans for the site cover the redevelopment into a mixed-use scheme of sustainable homes and offices with improved public realm.

Best Practices for a Successful Real Estate JV

1. Clear objectives and alignment: Ensure all parties have a shared, complementary vision/values and clear objectives. Misalignment can lead to conflicts and project delays.
2. Due diligence: Conduct thorough due diligence on potential partners. Assess their financial health, track record, and compatibility.
3. Robust legal framework: Draft comprehensive agreements that cover all aspects of the JV, including roles, responsibilities, profit distribution and exit strategies.
4. Effective communication: Maintain open and transparent communication channels. Regular updates and meetings can help address issues promptly.
5. Risk management: Identify potential risks early and develop mitigation strategies. This includes market risks, financial risks and operational risks.