Developers keen to share risks through joint ventures
Thu 29 May 2014
House builders in the UK are increasingly entering into joint ventures in an effort to minimise risk.
Joint ventures initially took off as a result of the financial crisis, as developers were keen to adopt a more cautious approach in this climate.
But despite signs of recovery in both the property market and the wider economy, it appears many developers still believe this is the right way to go.
Barratt Developments, for example, is currently adopting this approach by working with housing association London & Quadrant in the development of Fulham Riverside - a multi-million pound project that involves hundreds of apartments, upmarket townhouses and a brand new Sainsbury's store.
This particular joint venture is expected to lead to the delivery of 1,700 units with a £1.2 billion gross development value.
Richard Jones, head of residential, regeneration and growth at property consultancy EC Harris, noted that prior to 2008, house builders would not have "dreamt of sharing their models with anyone other than themselves".
However, he told the Financial Times that the financial crash led to people "looking around saying 'we've got to work in a different way'".
The joint venture with London & Quadrant is one of several such arrangements Barratt Developments has entered into in recent times.
For instance, the house builder has set up joint ventures with financial services provider Morgan Stanley, as well as property firm British Land and regeneration specialist Keepmoat.
Taylor Wimpey has also embraced this operating model, as it too has formed a joint venture with London & Quadrant, while joint ventures have been favoured by Persimmon and Linden Homes as well.
Richard Tinham, a corporate partner at Winckworth Sherwood who with his corporate real estate and tax colleagues has advised on real estate joint ventures with GDVs in excess of £2bn over the last 12 months, said: "Developers and funders alike have become more adept at identifying synergies that can be harnessed in a mutually beneficial way, optimising the complementary strengths of the parties.
"In particular, we have seen funding partners and developers make use of increasingly innovative financial packages and corporate structures to ensure each receives an equitable return on monies invested, without any interference with what the developer does best - realising maximum value from the property through planning and development strategies that appeal to the market."
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