Common joint venture structures
There is no single JV model. The most common in residential development are:
- Land owner joint venture. The owner contributes the site, often at an agreed value, and takes a share of the profit when units are sold rather than a price on day one.
- Equity partner joint venture. An investor provides some or all of the cash the developer would otherwise need to put in, in return for a share of the profit or a priority return paid before profits are shared.
- Experience joint venture. A newer developer partners with someone who has completed similar schemes, so the team as a whole meets the lender's experience requirements.
Most JVs borrow through a special purpose vehicle set up for the scheme, with the partners as shareholders. This keeps the development separate from other assets and gives the lender a clean borrower. Our guide to limited companies and SPVs covers the basics.
What lenders need to see
A development lender wants to know that the scheme will be delivered and that decisions will not stall if the partners disagree. Expect to provide the signed or draft JV agreement, the shareholdings in the borrowing company, and details of who manages the build day to day.
Where land is contributed rather than bought, the lender will need the land in the borrowing company's name, or charged to the lender, before funds are released. Any value the land owner is promised later, such as a share of sales, usually has to rank behind the development loan, and the lender will review the terms.
Personal guarantees are common on development finance and lenders will ask which partners provide them. Some accept guarantees from the experienced partner only; others want all major shareholders to give one. Our guide to personal guarantees explains how they work.
How JV equity fits the capital stack
Senior development lenders usually lend up to about 60% to 70% of gross development value and around 90% of costs, so most schemes need equity for the rest. JV equity can fill that gap, either alone or alongside mezzanine finance. Because equity partners take a share of the profit rather than interest, the cost depends on how well the scheme performs.
When comparing a JV against mezzanine, look at your expected profit under each structure, and at what happens if costs rise or sales slow. Our mezzanine and equity guide explains the differences, and the development ROCE calculator shows how putting less of your own money in changes your return on capital.
How we compare lenders for JV schemes
Lenders differ in how they treat JV structures: some are comfortable with land owner deals and contributed land, some will lend behind an equity partner, and some prefer the developer to hold a minimum stake. We compare those positions alongside rate, leverage and fees.
We then approach suitable lenders with the scheme, the partnership and the appraisal set out clearly. Instant Quotes gives indicative figures as a starting point, and final terms depend on each lender's valuation, monitoring surveyor and credit checks. We do not give legal or tax advice on the JV agreement itself; your solicitor and accountant should review it.
