JV Funds From "Active LPs" - What Procedure Do You Use?

[Bryan Hancock]

I am having a very interesting discussion with some folks I know about the JV versus regulation D private placement construct for capitalizing SFR development deals. One of the things that repeatedly comes up with potential JV (active) investors is the question of where the money resides while the project is happening.

At first blush this seems simple. You set up a JV, file for a D/B/A, set up the account, and dump the money in it. The trouble is that people may not know each other extremely well in some of these cases and all parties are worried one of the signers will run off with the money. People not strongly in control of the deal that are really contributing mostly just capital also would like to just fund the account as capital is needed in draws too. This eliminates control of the deal to the "managers" in the JV because he who controls the funds controls the deal.

Has anyone come up with a good way to make a JV work for something like this? I am assuming an escrow agreement may work, but you run into similar problems.

Ideas?