Cottrell, P. (1999), "Property Joint Ventures Now. Henry Stewart Conference, 17 December 1998, Royal Garden Hotel, London", Property Management, Vol. 17 No. 2. https://doi.org/10.1108/pm.1999.11317bac.001
Emerald Group Publishing Limited
Copyright © 1999, MCB UP Limited
Property Joint Ventures Now. Henry Stewart Conference, 17 December 1998, Royal Garden Hotel, London
Property Joint Ventures NowHenry Stewart Conference, 17 December 1998, Royal Garden Hotel, London
Whatever happened to property joint ventures? Were they still in vogue? If so, what kind of modern schemes suited a joint venture (JV) approach. Conceptually, JVs will suit a situation where two or more parties can achieve more together than they could alone a kind of real estate synergy. The conference, I hoped, would reveal all.
The programme notes promised a detailed, practical What are the problems? What are the solutions? briefing. The mistakes of the past, we were told, must not be repeated they were just too expensive to put right.
An eminent panel of speakers, mainly legal advisers, had to achieve this task on one of the last shopping days before Christmas.
Three primary requirements will determine the right type of JV structure:
tax transparency the need to avoid tax leakage;
limited liability of the company or individual partners;
management participation whether each joint venturer wants a controlling, active or sleeping involvemement.
Against these criteria, five principal structures were reviewed (Table I).
|Corporate JV company||Owned in agreed proportions by joint ventures which acquire a property||
|General partnership||Two or more parties acquiring a property as a partnership asset||
||Buchannaan Galleries, Glasgow (Pearl and Slough Estates)|
|Limited partnership||One general partner plus limited partners||
||Nat West Tower (Mercury, Hermes and Greycoat)|
|Trusts of land||Replaced trusts for sale from 1997||
||Fosse Retail Park Leicester (Caisse, Pillar and Schroders)|
|Profit sharing leases||Interest granted by one JV party to another||
||Angel Court, City of London|
Table I Five principle structures
Typically a joint venture will comprise permutations of landowner, developer and funder. One speaker attempted a definition of joint venture, simply as achieving more by working with others. This reductive approach conceals as much as it reveals but I prefer brevity even if it can mean all things to all people. Why should there be limits?
Maybe nothing in life is perfect and no one structure perfectly delivers tax transparency, limited liability and active management there is some degree of a trade off. The consensus view from the panel however seemed to favour limited partnerships. For these structures, at least one general partner and one or more limited partners is required. The general partner has unlimited liability for the debts and obligations of the partnership but manages the partnership affairs. Limited partner liabilities on the other hand are limited to their capital contributions provided they do not take part in the management of the partnership including the property; and this is the rub if you want active participation that is.
Even the general partners liability can be limited. Since a limited company or special purpose vehicle can be used as the general partner, the practical result can be limited liability for all participants.
Attention was drawn to the perils of any JV, including partnerships, being treated as a collective investment scheme under the Financial Services Act 1986, which can give rise to a separate layer of taxation. This trap it seems can be obviated by some adept legal manoeuvring.
Most forms of tax see through vehicles suffer from some degree of illiquidity. This is true also for limited partnerships. The market value of each partners interest will be less than the underlying asset value of that partners share because of the inflexibility of the structure.
So, what of the future? Will the new millennium provide fertile ground for the use of JVs? It seems so on the premise that, as the supply of development land dwindles, landowners will want to share in increasing value which a one-off sale may not deliver. But this is conjecture. Public sector disposals however were perceived to be a growing area of opportunity. Apart from so called PFI projects, I suspect that the financial imperative of immediate receipts may be too strong to resist for many cash-strapped public bodies.
Of course some marriages do end in divorce and joint ventures can go wrong. So it is crucial to provide for effective resolution in the documentation. Interestingly, the market was blamed for most failures. Whatever happens, the exit routes for each partner, venturer or vehicle itself should be clearly sign-posted.
One day cannot fully explore the complexities of a topic like this and, as one expects of such a conference, delegates left with bulging brief cases of notes. So much for my late Christmas shopping!
Paul CottrellUniversity of Glamorgan