However, there are concerns in the industry, he adds, mainly around pricing, the availability of assets, and the record levels of dry powder fund managers built up. But “most firms remain confident they can find value in the current market.”

In truth, developers probably prefer to tap a commingled fund compared to losing some control of its project to a JV partner. But as Richardson wrote:

It is important for developers to recognize that JV partnerships can also provide favorable opportunities for developers and operators that are not available in the more traditional fund structure. The fee structure and distribution waterfall—return percentages based on each investors' capital investment—often have more flexibility in a JV arrangement.

This Is Also A REIT Story

Earlier this year David Kessler, national director of the Commercial Real Estate Industry Practice at CohnReznick told GlobeSt.com that he believed REIT joint ventures will become one of the main go-to capital sources for developers this year as the traditional lending environment continued to tightened .

A joint venture is one of the best ways for REITs to get access to core deals at the lowest basis, Kessler said. “And I think developers are going to struggle with other sources to fill their capital needs this year. That is not to say capital will dry up for developers, but I do believe that the demand will be greater than the availability for many companies.”

A variation of this theme can be seen in Arlington, Va.-based Shooshan Cos.'partnership with Brandywine Realty Trust, a Radnor, Pa.-based REIT, for its Liberty Center project in Arlington. Last year Shooshan decided that instead of a pure office building for its final building in the five-asset complex, it would create a vertically-integrated mixed-use building instead.

The 22-story building will be split into eight floors of office space followed by 12 stories of residential. The first 30,000 square feet will be occupied by Vida Fitness. To be clear, this isn't a typical quick change in design plans. This new structure will have two different entrances and two elevator banks, to say nothing of the work required to optimize the redundant systems that such a building requires. There are a handful of such buildings around the country — including one Brandywine Realty is developing in Philadelphia — but few people would call these projects a trend to watch.

As it happened the fact that Brandywine was already its partner was a coincidence, CEO John Shooshan told GlobeSt.com in an earlier interview this year. The two had partnered on the original office project and when Shooshan approached Brandywine with its new concept it learned then that the REIT was already working on something similar.

The benefits to both parties are clear. Shooshan does not have to bear all the costs itself while Brandywine is able to avoid the costs of the initial work — the assemblage, the entitlement and then the re-entitlement — and still register a nice return on investment to add to its dividends.

In general public companies tend to get anxious when valuations or interest rate changes and construction costs rise, Shooshan says. With the Shooshan partnership, Brandywine was able to wait until the value was in place.

“We are excited about this new concept,” Shooshan says. “We have more interest from the office market than there is space available now that it has been reconceptualized.”

WASHINGTON, DC–Dallas, Texas-based Lincoln Property Co. and Chicago-based private equity firm Pearlmark Real Estate are joining forces to develop 699 14th Street NW, an 11-story trophy office planned for the city's East End. The site was once home to the National Bank of Washington and the joint venture has plans to renovate the bank and develop an adjoining trophy office building that will have 135,000 square feet of office and 25,000 square feet of retail.

Lincoln Property Co. is the hardly the first developer to form a joint venture to get a project off the ground. JVs, to state the obvious, are common structure for developers especially with the current tax characterization for carried interest.

Now, though, the economic and lending environment have made JVs a particularly appealing structure for both developers and capital sources, even as ironically enough, carried interest may change in Congress' comprehensive tax reform plans. More immediate concerns, though, top fears that carried interest may change, namely that construction finance is harder to source from banks due to national and global regulations while alternative sources have become somewhat risk adverse as the real estate cycle is maturing.

As for the institutional investors, they now prefer to fund projects through JVs and separate accounts instead of via commingled funds because of the security JVs offer, according to Todd Richardson, managing partner of Husch Blackwell's Omaha office, and head of the firm's private real estate fund, joint venture and real estate partnership practice. According to commentary he wrote for GlobeSt.com recently:

The JV structure allows investors to know the exact asset or project their cash is funding. Access to detailed information and active involvement provides investor security, unlike discretionary funds where the sponsor unilaterally makes the investment decisions.

This is not to say private equity is abandoning commercial real estate unless it has a partner in tow. On the contrary, as a recent Preqin survey of over 180 global real estate fund managers noted, two-thirds of these firms intend to deploy more capital over the next 12 months compared to the previous year, and almost half are planning to invest significantly more. The majority of fund managers expect to put more capital to work this year “even if they have to adapt their strategies or lower their return expectations as a result of current challenges,” says Andy Moylan, Preqin's head of Real Estate Products.

However, there are concerns in the industry, he adds, mainly around pricing, the availability of assets, and the record levels of dry powder fund managers built up. But “most firms remain confident they can find value in the current market.”

In truth, developers probably prefer to tap a commingled fund compared to losing some control of its project to a JV partner. But as Richardson wrote:

It is important for developers to recognize that JV partnerships can also provide favorable opportunities for developers and operators that are not available in the more traditional fund structure. The fee structure and distribution waterfall—return percentages based on each investors' capital investment—often have more flexibility in a JV arrangement.

This Is Also A REIT Story

Earlier this year David Kessler, national director of the Commercial Real Estate Industry Practice at CohnReznick told GlobeSt.com that he believed REIT joint ventures will become one of the main go-to capital sources for developers this year as the traditional lending environment continued to tightened .

A joint venture is one of the best ways for REITs to get access to core deals at the lowest basis, Kessler said. “And I think developers are going to struggle with other sources to fill their capital needs this year. That is not to say capital will dry up for developers, but I do believe that the demand will be greater than the availability for many companies.”

A variation of this theme can be seen in Arlington, Va.-based Shooshan Cos.'partnership with Brandywine Realty Trust, a Radnor, Pa.-based REIT, for its Liberty Center project in Arlington. Last year Shooshan decided that instead of a pure office building for its final building in the five-asset complex, it would create a vertically-integrated mixed-use building instead.

The 22-story building will be split into eight floors of office space followed by 12 stories of residential. The first 30,000 square feet will be occupied by Vida Fitness. To be clear, this isn't a typical quick change in design plans. This new structure will have two different entrances and two elevator banks, to say nothing of the work required to optimize the redundant systems that such a building requires. There are a handful of such buildings around the country — including one Brandywine Realty is developing in Philadelphia — but few people would call these projects a trend to watch.

As it happened the fact that Brandywine was already its partner was a coincidence, CEO John Shooshan told GlobeSt.com in an earlier interview this year. The two had partnered on the original office project and when Shooshan approached Brandywine with its new concept it learned then that the REIT was already working on something similar.

The benefits to both parties are clear. Shooshan does not have to bear all the costs itself while Brandywine is able to avoid the costs of the initial work — the assemblage, the entitlement and then the re-entitlement — and still register a nice return on investment to add to its dividends.

In general public companies tend to get anxious when valuations or interest rate changes and construction costs rise, Shooshan says. With the Shooshan partnership, Brandywine was able to wait until the value was in place.

“We are excited about this new concept,” Shooshan says. “We have more interest from the office market than there is space available now that it has been reconceptualized.”