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What Family Offices Need To Look For In A Joint Venture...

Sponsor Experience The first area that needs to be considered is the joint venture partner's experience. As the family office will be looking to its JV partner for expertise on the day-to-day operations of the real estate opportunity, members must have complete confidence in the JV partner. How many projects does the JV partner have in the works? JV Partner's Track Record When evaluating a JV with a partner, the following questions must be asked: What does their history show? How long is their track record — one year? Some questions you should evaluate are: • Are the finances such that the project's lifetime operating costs are covered and the project still provides an acceptable return on investment for the family office? • Was the project stress tested by running different downside scenarios so that the family office has an understanding of what really could happen and how that would affect the potential returns? Alignment Of Interest Although there is no one way a Joint Venture is structured, the typical structure consists of 90% of the equity provided by the family office investors (LPs) and 10% by the operating partner (GP). Fees are fine to be charged by the JV partner, but be sure to have a good understanding of what these are. A joint venture with a sponsor is a great way for family offices to minimize some of the due diligence that is required to invest into a real estate opportunity, as well as to have a predetermined structure for future deals.