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1/8/02: In our ongoing series of technical assistance pointers, the following
might serve a good rule of thumb guide for CDCs in looking at private developers
as partners. Enjoy.
NEGOTIATING A JOINT VENTURE
If the CDC chooses to go the partnership route,
they should choose a joint venture partner that has sufficient expertise and financial
strength to successfully complete the joint venture project. The CDC should also
determine if such a partner is compatible. Many projects encounter difficulty when
the partners are unable to get along.
1. Negotiating Strengths of Each Party: The partnership agreement should
be structured so as to take advantage of the strengths of each party.
Typically, the non-profit partner's strength lies in such areas as;
i. Community organizing
ii. Community planning
iii. Access to public agencies and funding
The private developer typically is strong in certain areas which include:
i. An established relationship to private lenders.
ii. An established relationship with an architect.
iii. An established relationship to a building contractor
2. Role for the Community Based Organization
Although some CBOs have more housing development and property management experience
than others, it is possible for any organization to carve out a role for itself
in a joint venture. A CBO should assess its capabilities and, when negotiating the
partnership agreement, should press firmly for appropriate roles and responsibilities
and appropriate percentages of the partnership benefits.
In considering possible tasks and duties for which it night be responsible, each
CBO would analyze all phases of the development process and select services that
they can possibly and reasonably provide. These services might include, without
limitation, the following;
(a) Providing market analysis of the housing project area.
(b) Identifying and selecting eligible sites and properties.
(c) Putting together financial packages
(d) Obtaining financing or funding from governmental or foundation sources.
(e) Selecting or assisting in the selection of contractors, subcontractors, and
others required in the development process.
(f) Obtaining needed zoning changes or approvals.
(g) Complying with any federal, state or local displacement rules.
(h) Complying with any environmental impact regulations.
(i) Acquiring the site and any improvements thereon.
(j) Actively assisting in planning and designing the improvements consistent with
the data provided in the market analysis
(k) participating as a contractor or subcontractor
(l) obtaining governmental permits and approvals such as building permits and certificates
(m) Marketing units in the housing project.
(n) Operating and managing the project once it is completed.
(o) Providing ongoing home counseling to tenants especially regarding the care of
their apartment units so as to minimize maintenance expenses.
3. What the CBO Can "Bring to the Table"
In contemplating possible joint ventures, each CBO should understand that a private
developer has little incentive to joint venture unless the CBO can provide services
or make contributions that the developer needs and cannot easily get himself. Therefore,
each CBO must thoroughly analyze its ability to make contributions during any or
all phases of the project.
For this reason, The CBO should attempt to perform as many services prior to obtaining
a joint venture as it possibly can. For example, the CBO could develop an economically
feasible housing concept and obtain control of the site and any property located
thereon, especially if it is county or city owned. Thus the CBO would be able to
obtain control of valuable property that a developer otherwise might not be able
to acquire. The CBO could also obtain a feasibility analysis of the project and
begin arranging financing with lenders and government agencies.
The basic idea is for the CBO to carry the project idea as far as it can without
spending much money. It should then seek a joint venture partner when it can go
no further on its own. the farther the CBO takes the project on its own, the more
control and money it can demand from its joint venture partner.
4. Items To Be Included in the Partnership Agreement. The agreement should
be in writing as to the duties, responsibilities and obligations of each partner
and the allocation of economic benefits. It should include provision for;
a. How much capital contribution.
b. Project concept and selecting the development team.
c. Management of project development
d. Financial liability. Each partner is normally equally liable to outside parties.
The CBO may, however, negotiate to receive indemnification from the private developer
limiting its potential liability.
e. Making additional capital contributions it needed.
f. Profit split
g. Deciding how the tax deductions will be divided.
h. Management of the completed project. The issue of who manages the property or
who hires and fires the management agent can be difficult to negotiate. Cbs are
naturally concerned about the long term role of the project in the community whereas
the partner and lender are concerned about the possibility of foreclosure should
the rents not be paid on time. Even if the CBO has no management experience, it
may insist that one of its staff persons receive "on the job training"
in management skills.
i. Splitting the cash proceeds if and when the completed project is ever sold.