Pros and Cons of Joint Venture Structure

[Susan Elliott]

I'm currently researching the different entity types that may fit a potential 16-unit property. I'm seeing that a GP/LP split and full PPM is out of the scope of this smaller multi-family deal and hearing that a Joint Venture structure is more common to pull together multiple investors. Does anyone have any experience with a Joint Venture that could share some pros/cons of this method? Any favorite articles or books that do a good job explalining the differences in legal entities for investment properties for non-lawyers? Of course, I have appointments with potential legal team members, but want to go into those meetings with a better grasp of the subject matter first.

Thanks in advance!

[Bryan Hancock]

Joint ventures are generally used in rather clunky small projects where the capital is not organized well in my experience. Ultimately someone needs to be in control of decision making though and doing things by committee will not work very well with a group of semi-active decision makers, which is what JVs often turn out to be. If they're done well then someone is still in charge and thus the other non-controlling members are probably going to be passive and thus you have a securities arrangement. Instead of trying to shoehorn this into a JV just hire a decent securities attorney who can do the disclosures needed and have things set up the right way. If you find the right person it won't cost you very much. If the deal won't support these costs then consider not doing the deal instead of putting yourself at risk if things go sideways or south, which happens more frequently than most people think it will.