Joint Ventures: How to Make Them Work

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Joint Ventures How to Make Them Work

• Martin Dunn,
• Dunn Development Corp.

LISC NYC Joint Ventures Conference May 5, 2006
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Agenda

• Martins Bio
• Dividing the Benefits in a Joint Venture
• Who Contributes What
• Big Issues and Potential Pitfalls
• Case Studies

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1. Martins Bio

• Started on the social service side
• Five years of CDC experience
• Real estate JVs with other non-profits
• Dunn Development Corp. since 1998
• 1,000 units in development pipeline
• Currently in joint ventures with non-profit
  partners on 14 projects
• Community housing orgs, churches, and supportive
  housing providers

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2. Dividing the Benefits in a JV

• Developer fee (paid and deferred portions)
• Construction contract (if one or more sides is a
  builder)
• Property management contract
• Cash flow and partnership fees
• Service provision contract
• Residual value of building after the regulatory
  period

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3a. Who Contributes What

• Private site acquisition and related risk
• Providing non-profit owned site
• Securing government owned site
• Advancing pre-development costs and related risk
• Financing guaranties
• Operating period guarantees

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3b. Who Contributes What

• Expertise in development
• Expertise in property management
• Expertise in providing supportive services
• Split of contributions generally determines split
  of benefits

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4a. Big Issues to Negotiate

• Split of benefits
• Residual value after the regulatory period
• Control during development and during operations
• We care most about control during development
  period controlling risk
• Post-development budget and management oversight
• Detailed JV agreements upfront

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4b. Potential Pitfalls

• Important to maintain common interest with
  partners in structure
• Construction can be a big issue
• Managing expectations is critical
• Maintaining timeline
• Expediting decisions
• Timeliness of predevelopment funds

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5a. Case Studies w/ Community Access Integrated
Supportive Housing

• Three buildings developed with this model
• Two completed
• 64 units in 2004
• 66 units in 2005
• One under construction (74 units)
• Create a new integrated model of housing for
  adults with psychiatric disabilities
• Collaboration with Community Access, which houses
  and provides services to people with psychiatric
  disabilities

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Community Access Case Studies

• Mixed population of non-special needs working
  families and special needs tenants
• Financing
• 9 Tax Credits through DHCR The Richman Group
• DHCR 1 loan through Housing Trust Fund Program
• Conventional Construction Loan CPC
• Rental Subsidies
• NYC DHMH funds for special needs units tenants
  pay share of SSI income
• Support Services
• On-site services funded by DHMH and provided by
  Community Access
• NYC DHS provides services funding for front desk
  coverage

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Community Access Case Studies

• Joint Venture Relationship
• DDC assembled the sites from private owners, put
  together the development team and secured the
  financing.
• DDC took lead role in joint venture through
  construction completion and permanent financing
  conversion
• CA responsible for marketing, lease-up, property
  management and support services provision
• CA is taking lead role in joint venture during
  operating period
• Used corporation as general partner

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Community Access Case Studies

• DDC/CA JVs Risks and Benefits
• DDC funded acquisition and took acquisition risk
• DDC and CA shared predev financing and risk
• CA took construction and operating period
  guarantees adjustments to deal if DDC provided
• Originally, split of fees and cash flow
  throughout
• Split was restructured effectively bought DDC
  out of deal
• DDC got larger share of dev fee and priority
  payment
• DDC gets priority cash flow payment until defd
  fee paid off
• CA has right of first refusal at Year 15

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5b. NEBHDCo Case Study

• DDC JV with Northeast Brooklyn Housing
  Development Corporation
• 33 units two- and three-bedrooms
• City-owned vacant land
• 9 Tax Credits through DHCR
• 1 loan through Housing Trust Fund
• Citibank Construction/Perm Loan

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NEBHDCo Case Study

• DDC/NEBHDCo JV Risks and Benefits
• Split Pre-dev funding and risk
• Split all guarantees equally negotiated with
  funders
• DDC took lead through development
• NEBHDCo will take lead in operating and property
  management
• DDC has larger share of dev fee cash flow and
  partnership management fee split evenly
• NEBHDCo has right of first refusal at Year 15

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5c. Elements of Other Projects

• Discounted land in exchange for Year-15 transfer
  plus annual payment
• Upfront payment of developer fee and/or
  guaranteed distributions
• Limits on rent increases
• Moved from Corp. to LLC structure for general
  partner
• For less defined projects, using a three-tiered
  decision structure major, intermediate, and
  other decisions