When it comes to choosing capital partners for real estate joint venture projects, compatibility is equally important as reliable financial resources, according to a panel of five leading real estate owners who came together this week for the KPMG/Wolff & Samson New Jersey Real Estate Private Equity Summit.
The panelists discussed the ins and outs of co-venturing from the operating partner perspective during the event, which took place at Eisenhower Corporate Campus in Livingston.
“We determine the best potential equity partners for a particular transaction based on the type of product and its location, and what we expect to achieve,” noted Edwin Cohen, a principal with Prism Capital Partners, LLC.
“The right match very well may be different for an income-producing vs. a value-add asset, or for an industrial, office or mixed-use property.”
Cohen added that common goals, clear expectations and frequent communication are the keys to successful joint venture deals.
“Having a real working knowledge of and experience with a particular financial partner is the best guarantee of a positive result,” he said.
“The best partnerships involve people and institutions that understand a particular marketplace and product type, and who want the same outcome.”
A joint venture’s business plan and reporting process create the foundation for a solid working relationship between the partners.
“As an operating partner, we love to be in control of projects on a daily basis, working in sync with our financial partner’s guidelines,” Cohen said.
“Some asset managers are happy to provide a high level of autonomy; others like to be very involved in decision-making. Understanding that and being flexible from the outset is important, as is full transparency.”
Cohen noted that this is particularly true when difficulties like cost overruns arise.
“Frequent meetings and conversations ensure that the capital partner is part of the process,” he said. “If something ends up costing more than expected, our partners know — even though the overall project may still be well under budget. Making them aware of issues from day one helps to ensure that everyone understands the big picture.”
Other panelists included Eric Witmondt, CEO, Woodmont Properties; Joseph Romano, principal, Accordia Realty Ventures; Kenneth Cohen, president, Pantheon Properties; and Brian Stolar, CEO, The Pinnacle Companies. Fredric Lavinthal, co-chair of the Real Estate Group at Wolff & Samson served as moderator.
In addition to covering qualities of the best joint venture working relationships, they discussed the nuts and bolts of today’s typical deal structures, from equity splits and typical fees, to debt guarantees.
“The capital partner, who is the major equity contributor, is in control of where the project will go, which is why it is so important to choose carefully,” Cohen noted.
“Of course, even with every safeguard in place things can go wrong. We learned that in the debacle five years ago, when so many institutions suddenly found themselves stretched beyond their limits. That said, strong due diligence up front, shared philosophies and intellectual capital, and great communication create a basis for successful, mutually beneficial projects.”
The Summit also included panels on “Key Financial, Tax and Legal Considerations for Real Estate Co-Venturers,” moderated by Phil Marra, KPMG’s National Client Leader – Real Estate, and “Equity Investors: What They Seek in Operating Partners and Real Estate Investments,” moderated by Mitchell Berkey, Co-Chair of Wolff & Samson’s Real Estate Group.