What is Joint-Venture Equity?
Joint-Venture Equity investors provide equity capital to sponsors and allow them to capitalize larger projects or programmatic ventures. Typically, the Joint-Venture Equity investor and the sponsors will contribute equity capital on a “90/10” basis (with the Joint-Venture Equity investor contributing 90%, and the sponsor contributing 10%) to fully capitalize the project “capital stack” over and above the debt financing amount.
Proceeds and distributions are based on the initial investment percentages until certain return hurdles are achieved. Once these hurdles are surpassed, the sponsor captures a carried interest (promote) in the project profits over and above their initial investment percentage.
Advantages of Joint-Venture Equity for Borrowers:
• Sponsor access to larger deals
• Scale operations and programmatic ventures
• Leverage the experience of institutional partners
What to consider when using Joint-Venture Equity:
• Responsibility with respect to project cost overruns
• Expectations on investment period
• Decision-making rights