Joint ventures can be an effective way for investors and developers to share risk and capital on real estate projects, but financing arrangements must be carefully structured from the outset.

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Here are 4 key financing issues to consider in any joint venture:

• Guarantees and Liability: Lenders often require personal or corporate guarantees and joint and several liability, meaning they can go after any one of the joint venturers for the entire debt, making it important for each party to a joint venture to understand its exposure before financing is secured.
• Financing Shortfalls: The joint venture agreement should clearly address how cost overruns, repayment deficiencies, or sale shortfalls will be allocated between each party to the joint venture.
• Separate Mortgages: Some joint venture agreements will allow each joint venturer to separately mortgage its interest in the property, regardless of what the other joint venturers do. If one partner can mortgage its interest independently, the joint venture agreement should limit the principal amount and interest that can be charged, require lender compliance with the joint venture agreement, and protect the non-mortgaging partner in the event of default or enforcement by the lender.
• Funding Discrepancies: Where partners contribute capital at different times or in different amounts, staged funding obligations and clear dispute resolution provisions will help avoid conflict.

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