NPN Joint Ventures - Why 50/50?

[Jordan P.]

I'm curious where the seemingly commonplace 50/50 split for NPN joint ventures came from? Is it simply supply/demand in that this price still brings enough capital to the table to do all the deals sponsors are looking to do? If so, why? Do capital providers end up negotiating JV terms to something different than what is typically "advertised"?

[Edward B.]

Let's remember that your numbers are made up and actual returns and probability of returns may be significantly different...either good or bad. So yes, it boils down to what you the investor believes your expected return will be and how that stacks up against your other investment options. Currently, there is enough capital to support the 50/50 business model. That certainly may change as more or bigger players get into the market just like any market. I would certainly not JV if I only expected no better than 12%. As you pointed out you probably get that for significantly less risk. But 20%+ expected with a chance for higher? Maybe. And I would absolutely pay somebody 50% of the profit for that return. Don't forget, it is an investment for you but a job for them. Your infinite% return for the sponsor is the same infinite% return that you get for going to work every day.