Joint Venture Development Finance

There are many types of development finance, and which one you choose will depend on a range of factors: how much capital you can personally contribute, the total cost of the project, project length, gross development value, and the rates you’re prepared to pay.

If you don’t currently have access to capital to put down as a deposit, you’ll need 100% project funding. Joint venture (JV) development finance is one way to get the money you need, if you’re willing to part with a share of the profits on completion.

In this guide, we’ll explain…

What is joint venture development finance?

In a nutshell it’s a way to get 100% funding for a property development project. It’s usually used for residential projects (multi-unit, new builds, or conversions) or mixed commercial and residential developments.

You won’t need to put in any capital yourself as the lender provides all the funds. They’ll cover the land purchase, material costs, and labour costs. They do this in exchange for a substantial share in the profits the project generates (usually 40-50%). The interest rates for JV development loans are also usually higher than other such loans.

You and the financer will set up a special purpose vehicle (SPV) together. Funds will be released to the SPV in instalments, aligned with specific milestones in the development timeline. When the project is complete, you’ll sell the units according to your exit strategy, repay the loan, and split the profits with the financer.

How it helps property developers

This type of financing is ideal for property developers who have a solid business strategy but don’t personally have the capital to get it up and running. It allows you to move quickly on an opportunity without spending a lot of time on raising funds, or to start a second project while your capital is still tied up in a first one.

Eligibility criteria

By offering a 100% joint venture loan, the lender is taking on all of the financial risk. If the project fails, they will be the only ones to lose money. So, naturally, they will only offer this type of funding to candidates they believe have a strong chance of success. You’ll usually need:

• A history of successful property development projects
• A strong business plan and exit strategy
• Detailed financial projections and a profitability forecast of at least 25%
• Detailed planning permission secured for the project

Beyond these basics, lenders will make their decision based on the individual merits of your case. Different lenders have different preferences regarding the size of the project, location, and property types, but there’s usually some flexibility if you have a good business plan.

How to get JV development finance

You might think that this type of financing is incredibly difficult to secure. It’s true that it’s only available to a small minority of individuals, but if you’re an experienced developer and you get these three steps right, you have a good chance of success.

Which lenders offer joint venture financing?

You won’t get this type of financing from a high street bank or mainstream lender. Usually, brokers have a network of investors with whom they’ve built up relationships over time and who they’ll introduce you to if they believe your business plan is good enough.

Do you need a deposit?

No. With 100% JV development finance you won’t need to put down a deposit. This is ideal if your capital is already tied up in other projects that are yet to generate revenue. You’ll be able to move on to new projects faster and work with a greater maximum capacity.