The ultimate goal for every landowner is to put it to commercial use by either developing or farming it for their economic gain. The most preferred in modern Kenya is the construction of either residential or commercial development. However, land development is a capital-intensive commitment that requires the landowner to be financially stable, in addition to having expertise in real estate development. This is where joint venture in real estate development comes in handy.
The joint venture arrangement brings together a combination of two or more players – the landowner and the real estate developer. It is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task.
The landowner brings onboard the land for the development and the developer brings onboard the funds needed for the development and the development expertise. The two entities co-own the project at percentages agreed at the signing of the joint venture agreements.
Joint ventures have over the years become very popular, and this is because of the benefits that they come with. Some of the benefits of getting into a joint venture include pooled resources which means a larger scope of expertise and finances. There is also the opportunity to gain knowledge and expertise from each other during the implementation of the project thereby increasing productivity. Joint ventures can also present the opportunity to access previously inaccessible markets, new markets or new sectors and both parties share the risk in case of any losses or liabilities.
As with everything, joint ventures also come with potential risks. The most common one is reputational risk which may result from failing to meet stakeholders’ expectations or from entering into a joint venture with a partner that does not share the same values. Imbalance in resource allocation, conflict in management style and failure to achieve intended plans resulting in losses are other risks associated with joint venture developments.
Here are some tips that a land owner should consider when entering into a joint venture agreement for real estate development:
Choose a developer with a proven track record
Having the right partner with a solid reputation and a proven track record in property development sets you on the right footing. Real estate developers like Safaricom Investment Cooperative have completed developments that one can go and visit. A developer with such a track record is always better than one who is yet to complete a project.
Form a special purpose vehicle with the developer
Creating a special purpose vehicle will ensure that both partners are shareholders and signatories. This ensures that your interests are taken care of and you are protected. With this special purpose vehicle, you are also able to spread any risk that might arise from undertaking real estate investment.
Get legal assistance in understanding the process
Every proper partnership entails signing of contracts and documents. Sometimes, as a land owner, you might be blinded by the benefits you are being offered and overlook some details that might cost you. It is important that before getting into any joint venture agreement, or before signing any document, you seek the counsel of a legal expert. A legal expert will take you through the document, explain to you in detail what you are getting from the partnership, your responsibilities and explain the risks you might be exposing yourself to before signing. This cushions you from any future misunderstandings and ensures that you are fully aware of what you are getting into.
Be a present participant in the development
When getting into a joint venture, ensure you are present in every step of the process. Being present during the different phases of the project implementation gives you a full picture of the project. This also ensures that both parties- the landowner and the developer – are able to deliver on their promises, ensure quality standard and meet clients’ needs.
Good and reliable joint ventures have resulted in impeccable projects such as the Zaria Village by Safaricom Investment Co-operative and Palm Ridge Limited in Kiambu County. The Zaria Village is a gated family oriented community comprising of 337 quarter acre serviced plots and is centrally located, making it easily accessible from Nairobi Central Business District. The development also boasts of the state-of-the-art security, internal cabro roads, connection to electricity and water as well as a jogging track, club house and a swimming pool for fitness enthusiasts. Amenities at Zaria Village are well taken of and guarantee a homeowner peace of mind.