Joint Venture financing options are becoming more and more common in Kenya as time goes by. These are useful where the land owner can not raise the money to construct either through personal savings or through bank loans.
Most banks require that the owner put in at least between 10 to 30% of the value of the construction , plus the monthly interest repayment ability, for them to give a loan of the balance of 70 to 90% of the construction cost. For large construction projects costing millions of shillings, this is usually a tall order for land owners.
Solution.
Joint Venture financiers now come in with the needed 10 to 30% of the cost of construction then they form a joint company with the land owner known as a special purpose vehicle. They agree on the ratio of profit sharing as laid down in the company shares in the SPV.
The land title now is owned by the SPV. This land title is then charged to a bank for a loan on financing the remaining 70 to 90% of the cost.
Sales.
After construction, most joint venture financiers opt towards sales of the units since real estate for sale gives a much shorter return compared to rental real estate. The Joint Venture financiers then take their share of the profits after all costs towards construction are subtracted. In most cases, the land owner gets the value of their land back, plus the profit.
Funding requests.
A4architect.com works with land owners to identify potential Joint Venture partners. A4architect.com provides initial architectural design and feasibility studies and the business plan . These documents are then used by the land owners to discuss with potential Joint Venture financiers. Once financiers show more interest, a4architect.com goes further to come up with the rest of the architectural drawings and construction project management as the construction proceeds.
A4architect.com runs different permutations and combinations for the financial models using excel spreadsheets to come up with the most profitable combination of units .
Types of units.
The type of units designed will depend on the cost of land, closeness to main road, closeness to a large urban center and the target market , whether low, middle or high class. All these issues are considered in the initial design and feasibility stage done by a4architect.com so that when the land owner presents the documents to potential Joint Venture financier, it takes a shorter time for the financier to make their decision.
Architect Francis Gichuhi Kamau.
info@a4architect.com
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