LOS ANGELES—Programmatic joint ventures have huge financial benefits that may include boosting returns, according to Michael Ray, a partner at law firm Pircher, Nichols and Meeks. As a result, programmatic joint ventures are gaining popularity and seeking out a wide range of asset classes. To find out more about the financial benefits of these structures and the rise in popularity, we sat down with Ray for an exclusive interview. Here, he answers all of our questions about programmatic joint ventures.
GlobeSt.com: What are the financial benefits of programmatic joint ventures to investors?
Ray: There are multiple benefits, both financial and non-financial, of programmatic joint ventures (PJV) to investors (i.e., equity capital partners). Specific financial benefits include, among others, the ability for investors to (i) manage/mitigate pursuit, dead deal and related administrative costs through negotiated deal presentment protocols and procedures; (ii) pre-negotiate a fee structure for investment management and ancillary deal-level services (e.g., property management; development; etc.); (iii) pool/cross investments to protect overall returns; and (iv) build relationships with best-in-class sponsors/operators that can be used as selling points in connection with fund raising efforts. Depending upon the strategy, investors can also utilize PJVs to achieve higher returns. For example, if the PJV pursues an “allocator” strategy, the investor may also share in the promote or fees received by the PJV.
GlobeSt.com: How do programmatic joint ventures impact efficiency and flow of deals?
Ray: PJVs can create efficiencies and access to deal flow for investors and sponsors alike by, among other ways, (i) reducing the time and expense needed to underwrite transactions since sponsor diligence has already been performed and equity capital has already been identified, (ii) facilitating investor access to captive, repetitive and quality deal flow within a specific investment strategy while preserving diversification on an investor portfolio basis; (iii) providing enhanced credibility to, and certainty of capital for, sponsors, leading to quick and cost-effective execution; and (iv) enabling timely liquidity events for both investors and sponsors through exit rights in respect of individual assets or on a portfolio basis.
GlobeSt.com: What asset types do programmatic joint ventures most commonly seek out?
Ray: In many cases, PJVs are structured around an investment strategy that is flexible as to asset type, but includes specified criteria for things like equity required on a deal-by-deal basis, geographic footprint, leverage restrictions (asset and portfolio) and target returns. That said, we have been involved with numerous PJVs that only target a specific asset class, including the broad categories of office, multifamily, retail and industrial, as well as more narrow categories, such as hotel and hospitality, parking and performing first-mortgage loans. PJVs also work well for investment strategies that make a traditional joint venture model less attractive, such as land development and entitlement, lower leveraged assets and multi-asset acquisition strategies.
GlobeSt.com: Why are programmatic joint ventures rising in popularity?
Ray: PJVs have emerged over the past few years as a preferred strategy for investors because they are able to deploy large amounts of capital with targeted allocations across multiple investment strategies/asset classes/geographic footprints through a small pool of handpicked sponsors/operators that are subject to some measure of exclusivity and control. This results in a dedicated pipeline of quality investment opportunities that can be vetted by the investor, and significantly reduces the time and expense associated with negotiating and maintaining passive limited partnership, separate account and/or direct investment relationships with multiple sponsors. Additionally, for non-U.S. real estate investment firms with no existing U.S. presence, traditional private equity investors, or investors for whom real estate is “non-core,” PJVs can lower the barriers to entry into the sector, as well as provide for the outsourcing (or the potential acquisition) of a real estate acquisitions and asset management platform. For a sponsor, in addition to securing a reliable source of capital, PJVs can be an effective mechanism to quickly expand a brand and increase assets under management. Sponsors can also leverage PJV successes into increased allocations from existing capital partners or to facilitate future fund raising efforts.
LOS ANGELES—Programmatic joint ventures have huge financial benefits that may include boosting returns, according to Michael Ray, a partner at law firm
GlobeSt.com: What are the financial benefits of programmatic joint ventures to investors?
Ray: There are multiple benefits, both financial and non-financial, of programmatic joint ventures (PJV) to investors (i.e., equity capital partners). Specific financial benefits include, among others, the ability for investors to (i) manage/mitigate pursuit, dead deal and related administrative costs through negotiated deal presentment protocols and procedures; (ii) pre-negotiate a fee structure for investment management and ancillary deal-level services (e.g., property management; development; etc.); (iii) pool/cross investments to protect overall returns; and (iv) build relationships with best-in-class sponsors/operators that can be used as selling points in connection with fund raising efforts. Depending upon the strategy, investors can also utilize PJVs to achieve higher returns. For example, if the PJV pursues an “allocator” strategy, the investor may also share in the promote or fees received by the PJV.
GlobeSt.com: How do programmatic joint ventures impact efficiency and flow of deals?
Ray: PJVs can create efficiencies and access to deal flow for investors and sponsors alike by, among other ways, (i) reducing the time and expense needed to underwrite transactions since sponsor diligence has already been performed and equity capital has already been identified, (ii) facilitating investor access to captive, repetitive and quality deal flow within a specific investment strategy while preserving diversification on an investor portfolio basis; (iii) providing enhanced credibility to, and certainty of capital for, sponsors, leading to quick and cost-effective execution; and (iv) enabling timely liquidity events for both investors and sponsors through exit rights in respect of individual assets or on a portfolio basis.
GlobeSt.com: What asset types do programmatic joint ventures most commonly seek out?
Ray: In many cases, PJVs are structured around an investment strategy that is flexible as to asset type, but includes specified criteria for things like equity required on a deal-by-deal basis, geographic footprint, leverage restrictions (asset and portfolio) and target returns. That said, we have been involved with numerous PJVs that only target a specific asset class, including the broad categories of office, multifamily, retail and industrial, as well as more narrow categories, such as hotel and hospitality, parking and performing first-mortgage loans. PJVs also work well for investment strategies that make a traditional joint venture model less attractive, such as land development and entitlement, lower leveraged assets and multi-asset acquisition strategies.
GlobeSt.com: Why are programmatic joint ventures rising in popularity?
Ray: PJVs have emerged over the past few years as a preferred strategy for investors because they are able to deploy large amounts of capital with targeted allocations across multiple investment strategies/asset classes/geographic footprints through a small pool of handpicked sponsors/operators that are subject to some measure of exclusivity and control. This results in a dedicated pipeline of quality investment opportunities that can be vetted by the investor, and significantly reduces the time and expense associated with negotiating and maintaining passive limited partnership, separate account and/or direct investment relationships with multiple sponsors. Additionally, for non-U.S. real estate investment firms with no existing U.S. presence, traditional private equity investors, or investors for whom real estate is “non-core,” PJVs can lower the barriers to entry into the sector, as well as provide for the outsourcing (or the potential acquisition) of a real estate acquisitions and asset management platform. For a sponsor, in addition to securing a reliable source of capital, PJVs can be an effective mechanism to quickly expand a brand and increase assets under management. Sponsors can also leverage PJV successes into increased allocations from existing capital partners or to facilitate future fund raising efforts.
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