Development costs JV partner

[jboire99]

Hello Everybody,



Here is my inquiry:

To build a $5M+ multi-unit development, what would be a good way to go about agreeing with a JV partner to cover the develop costs (say 10% or $500,000) used to prepare the project (architectural design etc.)

 

[Thomas Beyer]

By proving you can actually execute by showing him (or her) 3 other similar projects you did in the past .. and by putting up your own money too !



Opportunity, desire and ability have to align - do they in your situation ?

 

[jboire99]

I can provide more information: A project like this would be done in two phases: phase 1 the project preparation, and phase 2 the construction and sale where the project is presented to RE investors and rented, or sold to end-clients. A board will oversee the execution, will help guide both phases of the project and help define the project. Board members include an owner/manager of a similar asset, design-builder, project promoter, and phase 1 investor or group, not all board members are necessarily investors, number of board members and phase 1 investors can vary. In this case there are multiple partners, so participation is either 25%, 25%, 50%, or 33%, 33%, 33%, or 25%, 25%, 25%, 25% etc.


Phase 1 investors (for example 5-10% of project costs) would be an active participant as a board member and not just a financial JV investor. Phase 2 investors (remaining equity and/or loans) would be regular non-active JV investors (a lower return than phase 1 investors).




Any recommendations from RE investors that also build or work with a builder for multi-unit developments?

 

[Thomas Beyer]

So, you are saying you have not done it before ? Then likely no one would or should invest with you.



The phase 1 investor doesn't need you. He could do it himself.



What is your value-add ?



Get some experience first, then ask for money !



I also know in principle how to build a 20 storey high-rise building or fly an airplane. However, doing it takes years of training and experience.



Work for a firm that has done it, then do your own small project, with your own money, then scale up. That is the right path. There is no short-cut to wealth or experience.

 

[RedlineBrett]

[quote user=ThomasBeyer] There is no short-cut to wealth or experience.




+1 to this.



It's easy to dream up redevelopment ideas and make a spreadsheet that will show a profit margin. Doing it is a much different story and anyone with $500k lying around is going to know this. In the early stages of any project you aren't selling real estate so much as you are selling yourself and your business. Are you worth the investment?

 

[jboire99]

This is a serious discussion topic, this is about this two phased approach, related to preparing a project then building, which is a real approach to developing projects. Value-add fine, I am aware of your recommendations and we can assume that they would be addressed for the purpose of discussion.

 

[Thomas Beyer]

What's your construction background / track record ?