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The Rise of Joint Venture Agreements in New Construction Projects
28 Oct 2024
News
Building a new facility can be a daunting and risky task. It's often too much for one party to handle alone. In response, manufacturers, suppliers, and developers are increasingly using joint venture (JV) agreements to bring new construction projects to life. This shift towards collaborative financing helps spread the risk and boost the chances of success, especially in capital-intensive fields like cold storage and advanced manufacturing.
From Speculative Development to Joint Ventures
Speculative (spec) development is common in real estate, especially around big-box logistics facilities. With the scope of today’s industrial projects, spec development can be risky. So many of the industrial deals being completed today are in the Advanced Manufacturing sector where it is hard to know what to build for. Many of the Advanced Manufacturing projects today have unique facility characteristics such as height, column spacing, slab thickness or office space. In addition, with construction costs escalating and the additional construction requirements to accommodate automation, the cost to construct a building has a hefty price tag and could present a significant impact to a developers P&L. These risks have made the old spec model less viable, leading to a rise in JV partnerships. especially in sectors needing hefty upfront investments.
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