Key issues to consider in Joint Venture arrangement for construction and Real Estate.

Once the land owner and financier mutually agree to undertake a joint venture, below are key points that should drive the joint venture to success.

Registration of a Limited Liability company special purpose vehicle.

This is a limited liability company where both the land owner and financier will own shares depending on each contribution.
The company should be incorporated in such a way as to enable ease of solving issues relating to tax, and enabling ease of selling of individual shares within the company.

Feasibility study with impressive off plan sales.

An indepth feasibility study that outlines the best land use for the area that yields maximum profits needs to be carried out. www.a4architect.com offers feasibility study services to enable this. Once the most feasible use is established, off plan sales through advertisements should be done to test the waters and see the market response. If the market response is good, with at least 10% successful off plan sale, this means the feasibility study is perfect and no major changes are envisioned. If the market response is not good, the buyer response is then used to alter the designs to enable it to attract potential buyers to their liking. With good offmplan sales, banks will feel more confident to lend the bridging finance that is required to construct the project to completion.

Optimum architectural design to cater for mixed use developments.
The architectural design should be optimised such that the commercial parts of the buildings dont interfere with the residential parts in the case of mixed use developments. The architects should also design such that the residential units for sale do dont interfere with the residential units for rent, due to the differences in privacy aspects for both.

Joint Venture funding negotiations.

Land owners should be prepared for lenghtly funding negotiations between them and the financiers. Use of registered property valuers, quantity surveyors and architects for advisory services in therms of land value, construction costs will go a long way in enabling smooth negotiations.

Decision making and Project Mnagement.

Use of international best practice methods in construction project management will go a long way in ensuring success. Use of FIDIC or JBC construction contracts is a good starting point. The contractor, client and consultants can then follow the contractual agreements as outlined.

Arbitration and exit mechanisms.

Use of international best practice in dispute resolutions such as expert arbitration whereby the 2 conflicting parties each select an arbiter to help find a solution should be included in the contract. The contract should also outline exit mechanisms between the two parties if either party deems fit to sell off all or part of the shares in the limited liability company.

Architect Francis Gichuhi Kamau.
info@a4architect.com

Arch. Francis Gichuhi Kamau. (337 Posts)

Architect Francis Gichuhi . B.Arch. University of Nairobi. Registered Architect, Kenya. Member, Architectural Association of Kenya. Contacts. email info@a4architect.com. Telephone +254721410684


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