Joint Ventures in Greenfield Real Estate Development
How Do They Work? What’s the RISK? What’s the potential for my land?
This overview is provided to assist you in understanding the Greenfield residential/land development process and to show you how you can reduce or eliminate the associated RISKS entirely while maximizing the value of your land. Every parcel of land is unique (size does not matter!) and brings its own singular risk/reward attributes.
Land development is not the same as it was 20 years ago, 10 years ago, or even 12 months ago. The new Provincial land use controls such as the Provincial Policy Statement (PPS) and the Places to Grow Act have ushered in a new era of planning. It is important to understand whether you are located within an urban development boundary designated for future growth, or simply within the City boundary close to it. What about urban boundary adjustments or annexation, do they exist and what is the impact? Does local/Municipal Government planning staff help me or obstruct me? Are my lands going to be “Protected Countryside”? Am I Greenbelt? Am I Whitebelt? In addition, there are numerous and costly studies and process to be conducted; Hydrology & watershed studies, eco-systems-environmental, noise studies, servicing studies, engineering studies, community plans or block plans, Secondary plans, draft plans, OMB challenges and appeals, cost sharing agreements etc; all of which are very time consuming and costly, with no guarantee of final results, or anyone to pay you back in the event of failure.
There are many reasons why a landowner would consider undertaking a joint venture development project.
Some of them may be;
I have land and money, but I have no experience. Do I just sit and wait until I am surrounded by development, and then sell or develop? How long will that take?
My partner and I have land and money combined, but no school of hard knocks experience. How should we proceed and at what cost and risk? Am I being treated fairly by the consultants, or just as a cash cow with no end in sight?
My property is worth more than what I am being offered and I would like to maximize my position for my family and future. How do I proceed? Can I really expect to be profitable if I have no experience?
What happens if I don’t participate in community plans or urban boundary expansions? Is that the smart way, or am I affected by other developers, or planning policies? How do I protect myself?
How can I plan ahead for tax purposes and reduce any exposure legally? Can I sell my land based on a future value once certain benchmarks are achieved?
Is there a scenario whereby I am protected from my current land value, and there is profit to be made over and above it? How would that be shared, and what is my risk and exposure?
Do I remain in control of my destiny? Will I be the beneficiary of any increase in the value of my lands as they receive planning approval benchmarks? Can I retain my existing home while the development occurs?
Do I Keep it and do nothing, make nothing and keep paying taxes? Develop it myself, which will likely require cash, spotless credit, lots of expertise, and a monumental amount of time and effort.
Benefits to the Landowner and the Developer:
Why would a Developer want to a Joint Venture?
The developer benefits by being able to process the lands to the development approval stages in exchange for not paying large sums up front for the land. This method retains important capital while avoiding mortgage interest.
The developer benefits by receiving certainty in the form of the ability to develop the lands by way of process approvals, which are valuable to obtain financing for the servicing of the lands.
The developer benefits as the only risk is the soft costs to take the property through the approvals process, avoiding a large land cost with no assurance of the final outcome.
The developer wins by having a guaranteed development with inventory to use in the future, in addition to an agreed portion of the increase in value.
The Landowner benefits:
- Landowner benefits by ownership title remaining in the Landowners name.
- Landowner benefits as the lands will not be used as collateral.
- Landowner benefits as there will be no loans against the property.
- Landowner benefits as there are no out of pocket expenses for the landowner.
- Landowner benefits from the potential for annual income subject to the joint venture transaction structure.
- Land gets contributed at a market value and landowner participates in value creation process.
- Landowner benefits from structured sale that may reduce Income Tax exposure to Capital Gains tax, (accompanied by signed letter from nationally recognized major accounting firm).
- Landowner benefits in increased property value at approvals stage(s) receiving financial returns like a developer, but not recognized or taxed as a developer. You just simply sold at a much higher price!
- Landowner benefits by retaining his/her existing home while the development occurs (if development approvals process permits).
- Landowner does not require a bank loan, Landowner does not risk any of their own money, Landowner can just try out the property to see if it can be improved, If not Landowner is done with it, and at no cost!
Just as all parcels of land are unique, there are many individual solutions available to assist landowners that can be tailored according to their individual needs and circumstances. Solutions can range from having NO financial risk at all, with all costs being paid by, or contributed by, the consultants and may include an experienced developer/builder as the intended purchaser for additional funding.
Landowners realize and are aware of the value and potential of their lands, but are often not financially capable. Many of the JV`s provide for yearly cash distributions to the landowner with no tax payable until a transfer of deed occurs. These amounts usually account as a part of the end purchase price and are considered deposits. These deposits are non-refundable and non repayable.
There are many options to consider, so if you don’t have to sell to a developer before the property is ready to be developed, you can become one yourself without the headaches or substantial costs!
Nothing is free, and this may or may not sound attractive to you. The costs and risks provided by the necessary consultants have to be accounted for at some point in the future. Since we are experienced, we will conduct a feasibility study at our cost and share the information with the Landowner as part of the initial discussions. The landowner has to know that the lands current market value is protected and that the consultants/builder/developer eventually get reimbursed from the increased portion value of the property as a direct result of their work and efforts, which represent a form of financing.
The reimbursement occurs either on the sale of the property, or the proceeds are distributed from the sale of individual serviced lots and blocks. In any event, they are the last to get paid. This is a formula that creates a Win-Win situation and “if you don’t make money”, “we don’t make money” (or even get reimbursed!).
A joint venture is not to be taken lightly!
A joint venture is a legal organization that takes the form of a short term partnership in which the persons jointly undertake a transaction for mutual profit. Generally, each person contributes assets and shares risks. Like a partnership, joint ventures can involve any type of business transaction and the "persons" involved can be individuals, groups of individuals, companies, or corporations.
For a businessperson/landowner to embark on a joint venture with a partner, he or she needs to be committed and willing to work cooperatively with the other party involved. A person involved in a joint venture can no longer make all of the decisions for the business alone. For it to be truly a “joint venture,” there has to be 100% commitment from both sides.
When determining whether or not to embark on a joint venture, it is important to ensure both parties are a match with the projected real estate project development. In a joint venture, each party must compliment the other in business. Sometimes, a misunderstanding or a lack of communication can destroy a joint venture. Therefore, it is necessary for both parties to be capable of communicating what they are able to offer to the project and what their expectations are. Since money is involved in a real estate joint venture, it is necessary to have a strategic plan in place.
In short, both parties must be committed to focusing on the future of the partnership, rather than just the immediate returns. Ultimately, short term and long term successes are both important. In order to achieve this success, honesty, integrity, and communication within the joint venture are necessary.
No partnership works well unless both parties’ needs are being met and their mutual and individual goals are attained.
The development “Team” essentially provides you with “turnkey” management and in most cases with an experienced developer/homebuilder as the end “purchaser”. All aspects of development are looked after by the “Team” and essentially the only requirement of the owner is to participate in strategic decision making and to receive payments from the profit of the development. We would welcome your attendance at regular team meetings so you may better understand and participate in the process.
As with any legal agreement to be considered we strongly urge the Landowner to seek Legal Advice before signing any documents along with a certificate acknowledging the Landowner has received an explanation concerning the content, effect and rights of the participating venture partners.
If you have an interest in seeking out a dependable property partner, we welcome your call or enquiry regarding land opportunities. Most of the lands in and around built up areas in Southern Ontario from Barrie to Port Hope to Hamilton Niagara, to London have been inventoried by our team. You may discover that your lands are among them. Please contact us for a no obligation discussion.
Alex SerwaczekSince 1985 Alex Serwaczek and his partners have represented a variety of large Ontario based land owners and developers, including the farming community, and operates several development companies which either develop lands owned by those companies, or develops lands on behalf of individuals and companies who wish to develop land, but do not have the expertise, infrastructure or resources to do so.
Specializing in research, land assembly and joint ventures, along with servicing and project management of Greenfield residential, and other specialty land development projects, the experience garnered during those past years has brought together an experienced and multi-disciplinary team of some of Ontario’s finest planners, land development lawyers, engineers, accountants and consultants, which can provide creative solutions for overcoming financial and development obstacles in today’s difficult “Environment”. Alex and his partners are pleased to be associated with Royal St Andrew’s Real Estate Services Limited, and to have them as part of our team.
Below are listed some of the “team” responsibilities.
1) Draft Plan Application Procedure
a) assemble project team and initiate timeline and responsibilities
b) supervision of any environmental issues (EIS)
c) attendance at any pre-application meetings
d) preparation of cost budgets for your approval
2) Process lands to Draft Plan
a) supervision and coordination of other consultants to obtain approved draft plan
b) liaison with the municipality as required to finalize same
c) attendance at any municipal/regional hearings
d) preparing and distributing minutes of development team meetings to members and owners.
3) Plan Registration
a) supervise and coordinate other consultants to obtain all pre-registration releases for registration of plan(s) of subdivision
b) supervise and coordinate delivery to the appropriate authorities of release letters, letters of credit, Mylar’s, legal documentation and all other requirements for registration of the plan(s)
c) all follow up, development team meetings and other matters necessary for the registration of the plan(s)
d) preparing and distributing minutes of development team meetings
e) all other requirements necessary to have the plan(s) registered
4) Supervision of all engineering matters including:
a) reviewing all engineering submissions
b) all liaison with engineering consultants
c) reviewing and recommending tenders for acceptance
d) site inspections on behalf of owner
e) elevations and lot grading plan compliance
5) All dealings with banks and financial institutions with respect to the financing of the project, should you decide to finance same, including:
a) reviewing and recommending financing terms and conditions
b) all liaison with banks
c) providing banks with financial information and reporting
d) preparation of all payment draws
e) payment of all accounts relating to the development
f) deposits of all amounts received to Owner nominated bank account
g)all reconciliations with the bank
6) All accounting functions including:
a) book-keeping for the project
b) provision of book-keeping records and working papers to accountants for annual financial statements
7) All sales to builders/developers
a) negotiating and obtaining offers for draft approved lands or serviced lots.
b) reviewing offers with you
c) offer administration (both pre and post-closing)
8) Establishment of building restrictions and covenants for deeds
9) Building elevation approval and liaison with builders
10) All follow-ups on all subdivision matters including letter of credit reductions, inspections and liaison with City and Regional authorities
11) Administration of all municipal or regional subdivision and other agreements respecting the subdivision to their ultimate discharge
12) All other miscellaneous matters involved in the complete administration of the development and finalization of the subdivision to provide a “carefree” project.
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