Tilden Moschetti: Many times a
syndication or an investment

fund isn't just one sponsor
coming together to do this, to

find investors, to do the whole
projects. It's two or three.

Sometimes you're doing what's
called a joint venture, where

multiple parties are
participating, as the GP or the

sponsor, the manager, however
you want to call it for

yourself, and exactly how do you
do a joint venture agreement?

What are those key tips to make
sure the joint venture is

successful, so that at the end
of the day, investors are happy

and keep investing with you one
of the sponsors,

you one of the reasons we talk
about joint ventures is because

they happen a lot, right? So
you've got one team that's very

good at one thing. So for
example, it might be something

about, well, we're very good at
finance and identifying projects

and opportunities, but we're not
so good at developing itself and

actually doing those projects.
But the people who we want to be

developers want to be involved
and be part of the GP as well

for their own needs. That's
called a joint venture. When the

two groups come together, or
three groups come together for

that common purpose. When that
common purpose also has passive

investors coming in, then it's
still an investment. It's still

a syndication, right? It's still
considered a security. Just this

portion here, that's the general
partnership, because everybody's

very actively involved. Is not
the security? What's the

security is the pass of people
who have come in as part of it.

Now, there are multiple
different things to keep in mind

and making sure that it all
works. Well. I've got five

different tips that I think are
going to help you with your own

joint venture as part of a
syndication or investment fund.

One thing when you're doing that
syndication with joint venture

partners, that you've got to do
is each one of the parties needs

to have clearly identified roles
and responsibilities. What are

their What are they doing? What
are their contributions? Now,

I've done other videos, and we
can link to that here, about

talking about roles and
responsibilities. But the other

thing that has to be thought of
is, what's the contribution?

Right? That needs to be clearly
identified. If one group is

coming up with all the cash, the
second group probably needs to

know that, as well as the first
group, they need to know what,

who's contributing what, not
only in terms of dollars,

though, also what's very
important is the contributions

of time. Is this one group going
to be doing all the finding of

the asset? Is this group going
to be doing all of the

development? Are they only doing
a piece of it? Whatever those

things are you want to think
through them, identify them, and

incorporate them into your joint
venture agreement, so

ultimately, you can make it
successful. Part of this, too,

is coming up with the key
components that are that are

part of the the joint venture
agreement. So once you've

identified, you know, kind of
those roles and

responsibilities, we also need
to go through those, those

components that just are
necessarily there, first on,

foremost on everybody's mind, is
profit sharing. Exactly. How are

profits going to be split
between everyone? Are these

people's expenses going to get
paid or not? Is it just a

straight percentage? How is that
percentage divided up? What does

that look like? It can be a lot
of different things, but it

needs to be able to be something
that everybody knows about has

agreed to ahead of time before
it's six months later, one year

later, and then there's some
dispute over it. Well, no, we

were going to be splitting
profits, 5050, well, no, but

that was after expenses that I
had, or whatever it is. It needs

to be taken care up front it
should be in your joint venture

agreement. Also there is
management responsibilities.

Who's involved with the pieces
of the puzzle itself? Who's the

one that makes the decisions on
the on behalf of the joint

venture? Is one group going to
make all of those decisions and

the other people are just active
participants, kind of under

their direction, or does it look
something more like, well, we're

each going to decide mutually,
and if there's a dispute over

those, how are those going to
get resolved? Lastly, how is the

exit going to take place for the
joint venture itself? Who makes

the decision on timing? How does
it actually get structured?

Who's responsible for what those
things are, all key components

of that joint venture agreement,
there are legal considerations

when we're thinking about joint
ventures as well. Certainly,

structurally, that's a big one.
Most of the time I like to put

the joint venture participants
themselves. Each of those

individual GPS, two or three
are, however many people coming

together underneath its own LLC.
I do that because I find it

easier to manage the the other
components when we've got sort

of an operating agreement as the
main body, the main working

document, rather than a joint
venture agreement. This is a

stylistic thing. It's not
actually critical whether you

use this particular style or
whether it's a joint venture

style. That's just my general
preference. I like to do it that

way. It also obscures for the
investors who don't need to know

how that relationship works. If
I have a situation where I've

got a joint venture and I don't
do that, there needs to be,

there's going to be some
visibility to the investors on

how money is getting split up,
how roles and responsibilities

are getting split up. I find
that not to be as advantageous.

Investors want to be able to
think, Okay, I've given this,

this, my money to this. It's all
working for me. Yay. They don't

want to get caught up in the
drama between different joint

Venturers. So the other thing
that we obviously need to think

about is, when we've got that
structure, is compliance rules.

We need to make sure that that
joint venture didn't

inadvertently create a security
amongst other of the joint

ventures, which most of the time
is doable to do, but we need to

define the roles and
responsibilities to make sure

that somebody is taking just a
passive role, the investment of

money, the expectation of
profit, relying on the use, on

the work of another. That's the
definition of a security if this

person is coming in as a joint
venture and they're just giving

money and expecting some sort of
profit, it's a security. It's

not a joint venture. We've got a
problem here, and that needs to

be dealt with ahead of time. And
lastly, we need to make sure

that the drafting of the
document goes along in a way

that all of the parties
understand what those different

components are, how they fit
together. So nobody feels like,

Well, I wasn't a part of the
conversation at the beginning.

So with all these different
things coming together, why

would you do a joint venture?
Well, obviously, it's to pool

resources, right? It's to pool
resources. And I don't just mean

money, it's also expertise, it's
also investors. Those people

come together. When you're
putting together a larger team

that is a joint venture, you
need to make sure all the pieces

are there, and many times we can
do that through the joint

venture. So everybody feels some
autonomy from each other, but

they also feel like they're
getting their what they deserve

and what their contribution is.
So that pooling of resources is

a huge benefit of doing it.
Another really is sharing that

expertise. You may have a lot of
expertise in putting these deals

together, but you don't have
expertise in the specific asset

class, or you don't have the
specific expertise in some

component of it that you wish
that you had by doing a joint

venture again, that you're
having parties come together,

and you're taking advantage of
that expertise for the whole

syndication, which ultimately
goes to the investors. There's

also a sharing of the risks, and
so if you're sharing in the

costs of putting things together
and the time you're putting in

together, if everything dies and
falls flat, well each of you may

have contributed 50% of what you
would have initially contributed

to it, and so there's less lost
at the end of The day.

So what's the downside? Well,
first off, there are some risks

to it. Most importantly is
misaligned objectives. Now this

should be taken care of by
putting together a proper joint

venture agreement. If you're
doing that, you probably have

identified along the way what
each of your team's objectives

are. We want objectives to be
mutually aligned. We don't want

them to be at cross purposes.
Otherwise. Why are we even doing

this deal together at the first
place? But we need to. So we

need to make sure that we've got
those objectives that are good,

not only for short term, but
also for long term. I want to

put this deal together because
it's going to help us transform

into a very large read with this
well, that could be very

different from well, we want to
stay small and nimble, and we

want to do you know this and and
just make maximize the amount of

profit, or whatever it is. Those
could be misaligned, and it's

helpful to identify that ahead
of time. There's also a risk of

dependency. So we may have a
situation where one of the one

of the joint Venturers is
completely dependent on the

other. This isn't a good a
situation, because we put it the

you put that one party in a
position where they really need

to need the other more than the
than the first guy does, all

right, so we. Need to create a
situation where there's a plan

to really raise the level of all
the joint Venturers so that

they're mutually satisfied. Now,
in one deal, maybe it's not so

so important, but by deal two or
three, very important to do

this. It is a risk and it is a
problem. And lastly, it is more

complex to manage a joint
venture, because you've got got,

not only are you managing a set
of investors that all have some

autonomy built into them, and so
that can be a potential risk.

Now, that's not that all being
said, it oftentimes makes sense

to do a joint venture inside of
a syndication and an investment,

an investment fund, if you need
help putting that together. My

name is Tilden moschetti. I am a
syndication attorney, and we

work with syndicators investment
funds to put together deals and

structured deals in a way that
really makes their clients

money, makes their investors
money, but also makes you a lot

of money as well. And we have
the expertise of having put

together so many joint ventures,
working in joint ventures with

boots on the ground experience
as well, because I've done that

for myself, and we can help you
with that process too. If you'd

like to talk about your project,
don't hesitate to give us a

call, send us an email, get in
touch, and we can set up a

meeting to go through what
you're working on. You.