Joint venture development finance

What 100 percent development funding actually means

Joint venture development finance is widely marketed as 100% development finance, and for practical purposes the two describe the same thing. A JV funding partner puts up the site acquisition funding and the build costs and professional fees, so the developer can run a scheme with no deposit and no cash input of their own. In place of a cash stake, the developer brings the site, the planning, the development appraisal and the ability to deliver. That contribution is often called sweat equity, and it is what the funder is backing.

The difference from ordinary development finance is how the money is repaid. Senior debt is repaid with interest and fees, and the developer keeps the profit. In a joint venture the funder provides equity funding rather than pure debt, so instead of a fixed interest return it takes a share of the profit the scheme produces. DevExit arranges and places this finance with JV and equity funders; we are an arranger and introducer, not a lender, and the facility is unregulated commercial lending that sits outside the FCA regulated perimeter.

How the profit split is structured

The headline people remember is a 50/50 profit share, and an even split after costs is a common starting point. In practice the profit split is negotiated deal by deal. The funder usually takes its return on capital first, meaning the money it advanced plus an agreed preferred return, and the remaining profit is then divided between the funder and the developer. The stronger the developer's track record and the profit on cost, the more the split tends to move in the developer's favour.

The worked example below is illustrative only and is not an offer of finance. It shows how the profit on a scheme with a gross development value of 3.2 million pounds might be shared after the funder's return on capital.

The profit on cost margin here is about 33 percent and the profit on GDV margin is 25 percent. Those numbers matter because a JV funder tests both against its minimum before considering the deal. Where the margin is thinner the split moves toward the funder, and where the residual land value leaves little headroom the deal does not work as a joint venture.

What a JV funding partner requires

A JV partner is taking equity risk, not lending against a comfortable loan to value, so its criteria are stricter than a senior lender's. It wants to see that the scheme will make money, that the person running it has done so before, and that there is a clear way out. The requirements below are typical rather than universal.

• A viable GDV and margin, usually a minimum GDV that makes the deal worth structuring and a profit on cost the funder considers safe
• An experienced, seasoned property developer with a track record of completed schemes of similar type and size
• Detailed or full planning permission in place, because a JV funder rarely takes planning risk on top of build and market risk
• A credible exit strategy, whether that is a sales period after completion or a refinance at completion onto term debt
• A special purpose vehicle to hold the site, with the funder taking first charge security and a defined equity or profit stake
• A personal guarantee from the developer in most cases, aligning the developer with the outcome even where no cash is invested

Because the bar is high, joint venture funding is not a route for a first-time developer with no site and no planning. A funder is backing proven delivery, not learning on the job. Where experience is limited, a more realistic path is senior debt with a cash deposit, or mezzanine finance to reduce the deposit, rather than a full profit-share partnership.

Weighing equity partnership against senior debt and mezzanine

Joint venture finance sits at the equity end of the capital stack. Senior debt is the cheapest money but caps out at a portion of cost or value and needs a deposit. Mezzanine finance vs JV is a question of degree: mezzanine tops up senior debt to cut the cash required and is repaid with interest and sometimes a small profit share, while a JV replaces the developer's equity entirely and is paid mainly through the profit split. The choice is really senior debt vs equity, and how much of the upside a developer is willing to give away to avoid putting in cash.

How an exit bridge takes out the JV partner at completion

This is the step most guides leave out. A joint venture is expensive to keep in place once the build risk has gone, because the funder continues to share in a scheme that is finished and simply waiting to sell. At or near practical completion a development exit bridge, a short-term bridging loan sized on loan to GDV, can refinance the scheme, repay the JV partner and let the developer take control of the remaining sales period alone.

1. Reach practical completion, when the scheme is built and signed off but not yet fully sold.
2. Arrange a development exit bridge sized against GDV, indicatively up to about 70 to 75 percent loan to GDV.
3. Draw the bridge to repay the JV partner's capital and its agreed return, taking the equity partner out of the deal.
4. Sell the units through the sales period, or refinance at completion onto term debt, and redeem the exit bridge.

Buying the JV partner out with an exit bridge crystallises the developer's profit share earlier and stops the funder sharing in sales that complete after the building is finished. Because the exit bridge is priced as short-term property finance against a standing asset rather than an equity stake in a project, it can be markedly cheaper than leaving the joint venture running through the sales period. This is where joint venture development finance connects directly to our core development exit finance product, covered on our pillar finance page at /finance/.

How we structure joint venture funding and its exit

We assess the development appraisal, the GDV and the profit on cost, then place the case with the JV or equity funder whose appetite fits the scheme, the location and the developer's track record. We agree the profit split, the special purpose vehicle structure and the first charge terms up front, and we plan the take-out from the outset so an exit bridge can repay the partner cleanly at completion. DevExit is a finance arranger and introducer, not a lender; the finance we arrange is unregulated commercial lending, and every figure we quote is illustrative and not an offer of finance. Where the structure has tax consequences, this is not tax advice, so speak to an accountant. More sits on our pillar finance page at /finance/.