RE: Joint Venture

What are the steps for a JV in cash flows from operations?

1. Determine investor and operator non-cumulative preferred return 2. Determine CF split from operations 3. Separate CFs by CF to investor and CF to operator

What are the initial capital contributions?

1. Investor puts up 90%-95% of the money 2. Operator puts up remaining 5%-10% (alignment of interests)

What are the steps for a JV in cash flows from sale?

1. Pay off any outstanding debt 2. Return capital investments 3. Determine any additional amount due to investor to earn the preferred IRR 4. Split remaining amount 50/50

What is the order of remainder distributions?

1. Predetermined portions 2. IRR preference 3. IRR lookbacks

What are the 3 ways to share cash flow from operations?

1. Proportion 2. Disproportionate 3. Specified fees paid to outside 3rd parties

What is the typical order of repayment?

1. Repay outstanding debt 2. Return initial investment 3. Distribute the remaining

What are the 4 characteristics for a joint venture?

1. Risk sharing (most attractive when you don't have money or knowledge) 2. Combine expertise & capital (2 people: investor and operator) 3. Specific objectives (project based) 4. NOT a legal form (usually a limited partnership is formed)

What are the 2 ways to share cash flows from sale?

1. Typical order of repayment 2. Remainder distribution

What is sharing cash flows in disproportionate?

Preferred return (most common in non-cumulative)

What is sharing cash flows in proportion?

you put in what you get