October 12, 2016
From Law360

Real Estate Players Turn To JVs For Flexibility

by Matthew Perlman

Real estate developers and investors alike seek out joint venture opportunities for a variety of reasons, but experts say it's the flexibility of the structure that offers the real draw, helping players and capital connect in a complex market.

During the financial crisis, real estate developers began turning to alternative forms of financing because debt was hard to come by or too expensive. Since then, new bank regulations have kept a cloud over traditional lending institutions just as an influx of available private equity has come onto the scene.

The result has been real estate deals with complicated financing structures that include mixes of debt and equity, which attorneys say are well-suited for joint ventures because of the varying needs of those involved and the particulars of the projects.

While joint ventures may be more commonly seen these days on large-scale developments in so-called gateway markets, F. Chase Simmons, chair of the real estate practice at Polsinelli PC, said he's seeing the same types of formations in cities across the country.

"In the really sophisticated coastal markets, there's maybe a little bit more of an uptick, but it's pretty similar in Dallas, Chicago, Denver," Simmons told Law360. "We're seeing the capital stacks get more sophisticated and more complicated than they have been in the past."

It's not that traditional lending sources have completely dried up, but new regulatory requirements, including those under the Basel III accord, have resulted in lower loan-to-value ratios for bank loans, meaning developers are left with a financing hole to fill even after landing a loan.

"They are increasingly requiring more capital and less debt on deals," Simmons said. "And when you have that, what you're going to find is that people are going to start going to equity partners to fill in."

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