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Some senior lenders will go up to 70% of gross development value (GDV) for the right developer with the right track record. A JV partner can help with the gap.
Picture the appraisal. The senior lender will lend up to a set share of the scheme's value. Your own cash covers a slice. A gap sits in the middle, and it will not close however long you stare at the spreadsheet.
A joint venture (JV) is one way to close it. This guide explains how a property JV works, and when joint venture development finance may suit you better than mezzanine.
The 30-second version
- What it is: a partner joins you on one scheme and puts money into it. The agreement between you sets out how the result is shared. It is not a loan.
- What it costs: a JV is not a loan, so there is no loan rate. Mezzanine, by comparison, is priced above senior debt, case by case.
- The catch: the agreement between you needs careful drafting.
What is joint venture development finance?
A property JV brings two or more parties together to fund and deliver one scheme. You usually bring the site, the planning, the know-how or some cash. The partner brings money. A senior lender then provides the main loan.
The partner is not a lender. That is the difference from mezzanine, which is debt priced above senior debt, case by case.
A JV is often held in a special purpose vehicle (SPV) set up for the one scheme, such as a limited company or an LLP. Take legal and tax advice early.
How the agreement works
A members' or shareholders' agreement should set out who makes day-to-day decisions, which decisions need both of you and what happens if you disagree. It is the heart of a JV.
Use a solicitor who knows development JVs.
The senior lender takes a first charge over the scheme. A senior lender may want to see the JV terms, so show them early.
JV, mezzanine or something else?
| Your situation | What it may point to | What is commonly done next |
|---|---|---|
| You are open to a second party in the scheme | A JV may be worth a look | Run the appraisal both ways first |
| The margin is modest and you want to stay in sole control | Mezzanine may suit you: priced above senior, case by case | Ask for the full cost, including fees, before you compare |
| You have a gap and a strong track record | Stretch finance can take borrowing further (see below) | Ask about the stretch first |
| A contractor wants to join the scheme | A contractor JV | See the contractor section below |
| You do not want a third party in the scheme | Mezzanine or a stretched senior loan | Compare the full cost of each before you decide |
What I am seeing now: contractors as JV partners
In my experience, the JV partner is not always an outside funder. I have three schemes running with a contractor as the partner. One is around £20m and one is well over £50m. Two are Gateway 2 schemes.
In the schemes I am seeing, the contractor helps fund, if not fully funds, the Gateway 2 costs. In those schemes it also defers its full 3% retention, and some or all of its profit, until the lender is repaid. That helps cash flow.
Gateway 2 (building control approval from the Building Safety Regulator before work starts) applies in England to higher-risk buildings: at least 18m tall or at least 7 storeys, with at least 2 residential units (care homes and hospitals too; hotels are excluded). Below that, it does not apply.
How far borrowing can go
Senior debt goes up to 70% of GDV for the right developer, and up to 75% with extra security or pre-sales in place. Stretch senior and mezzanine can take total borrowing up to 85% of GDV.
What a partner (and a lender) may look at
A partner and a lender will each look closely at the scheme before they commit.
- Track record. Lenders look at your track record, and at anything that adds to the scheme's value.
- The exit. A lender will want a specific exit before it issues an offer: a clear route to sale or refinance.
Before you approach a JV partner: four questions
- What will each side put in: cash, land, planning or time?
- What happens if you disagree, or one side wants out?
- Who can make decisions alone, and which need both of you?
- Have you shown the senior lender the structure?
For a structure where an institution funds the build and buys the finished scheme, see forward funding. It is a different route from a JV.
Frequently asked questions
Do I need my own money in a JV?
Not always in cash. Your share can be land, planning or time instead.
Can a first-time developer do a JV?
It can be. Lenders look at track record, so the team around you matters. Tell us about the scheme. We arrange loans; we do not lend.
What should I have ready before I talk to a partner?
Your appraisal, planning position and exit plan.
Your next move
Tell us the scheme and the senior loan you need, and we can talk through the numbers. It is a confidential, no-obligation chat.
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Related: mezzanine finance guide · development exit finance · 100% development finance · development finance
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