Joint Ventures: Financing Considerations And Potential Pitfalls

If you are an investor, developer or lender in a joint venture that is proposing to finance the property that is the subject of the joint venture, it is important to protect your interests by considering how to address a number of issues that commonly arise in this context.

These five financing considerations warrant careful attention in the structuring of joint ventures.

1. Separate Mortgaging Rights. Separate mortgage rights allow a joint venture partner to mortgage its undivided interest in the project, even if the other partner does not. To mitigate risk for the non-mortgaging partner, the loan's principal amount and interest rate should be capped, and protective terms should be included in the loan agreement, including a requirement that any lender assuming the mortgaging partner's interest agrees to be bound by the obligations under the joint venture arrangement. To avoid the mortgage being assigned to a competitor or unsuitable lender, the non-mortgaging