Not knowing or doing appropriate due diligence on their JV partner, which could cover a myriad of problems.
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What are common mistakes made by groups engaging in their first joint venture real estate development deal?
We are likely to enter a deal with a U.S. developer for a series of student housing projects in the Southeast. We feel very confident about the viability and potential return on these projects. However, we are a bit hesitant because this is our first JV deal with a U.S. group. What are some mistakes made by international groups in JV deals with U.S. developers that we need to be sure to avoid?
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Your question is a good one. Ownership of an interest in a joint venture means you will have to live with the terms you have agreed to in the venture document. Who is the managing member? What are the major decisions? What happens if you cannot agree on an important matter? Who is responsible for keeping filings current and filing tax returns? You need a good lawyer with experience in joint ventures to give you advice. That would be my first step.
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The most common mistake is for the foreign investor to assume, either consciously or unconsciously, that everything is handled the way it is in his home country. Another very important distinction in investing in the United States is that the state a project is located in will have laws that may vary widely from the applicable laws in another state. The same goes for the city, village, county or town that is the site of the project.
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