Originally published in Blakes Bulletin on Real Estate
Joint Ventures, October 2010
Joint ventures are commonly formed for the purpose of enabling
the participants to mitigate the financial risk of participating in
a project. This is particularly the case in respect of commercial
real estate projects, which tend to be more expensive and less
liquid than some other investments.
The term "joint venture" has no precise legal meaning,
but generally denotes an association of two or more persons,
usually governed by contract, pursuant to which such persons agree
to combine their money, property, knowledge, skills, experience,
time and other resources in the furtherance of a project, usually
agreeing to share the profits and losses, and with each having some
degree of control over the venture.
Joint ventures also enable the participants to pooI their
expertise and resources for the benefit of all of the participants.
In commercial real estate joint ventures, for example, it is common
for one participant to bring real estate development or management
expertise to the table, while the other participant or participants
contribute financial resources. Canadian pension funds are
frequently joint venture participants in the latter role and their
particular requirements often mandate the structure of the joint
It is anticipated that there will be more joint ventures in the
real estate sector in the next few years. A number of factors serve
to explain this development. One such factor is that several
offshore investors are keen to invest in Canada but have not been
able to locate a desirable project. At the same time, such
investors do not have their own local connections and the requisite
expertise to manage Canadian properties. In such circumstances,
teaming up with a Canadian owner which has such management
expertise and which is prepared to part with some of the equity in
its trophy properties makes considerable sense for a non-Canadian
For a Canadian owner required to refinance its real estate
assets and recapitalize its portfolio to satisfy the more rigorous
loan-to-value ratios which currently pertain, an equity
participation through a joint venture may be an attractive approach
– especially considering the alternatives of disposing of
a number of assets or endeavouring to obtain second-mortgage or
mezzanine financing at unattractive interest rates. Additionally, a
joint venture arrangement would more likely satisfy the
requirements of a first mortgagee, in contrast to the alternative
of second-mortgage or mezzanine financing, which financing is often
prohibited by the terms of the first mortgagee's loan
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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