Joint Venture Structure with Builder (development projects) Is this a fair structure?
I've started working with a builder locally on our first Development/Build Project. Essentially I am finding and procuring the land/lot via traditional financing and funding everything through the development phase until we get to Construction Loan.
The structure we landed on was as follows:
- Fixed Builder fee of $300k (each project varies but are 2-6 units, and 5,000-9,000 total finished sq ft)
- Fixed Return on all my initial capital invested of 50% (plus return of 100% of initial capital)
- Remaining Profit Split of 60/40 (60% to me, and 40% to him)
I understand a lot of this hinges on how accurate the proforma is and how close we can get to actually hitting our development costs estimates, build cost estimates, and sales per sq. ft. estimates. But assuming I feel extremely confident in the proforma numbers, does the structure seem fair for the risk and requirements from each party? This should be a win/win for both of us.
Would love input/opinions on this structure and if there are other ways I should be looking at it. Thanks in advance!