The Dangers of Joint Ventures

There are multiple ways that a church can monetize it’s underused real estate. The most common structures include ground leases, sale with or without deed-backs, and joint ventures. Each type presents its own benefits and risks. Unfortunately, the structure that has the most risk is also seen by many faith-based organizations as a way to maximize financial potential, both present and future, without having to give up ownership of the property.

The worst-case outcome was recently in the news: Marble Collegiate Church lost its property to foreclosure, as part of a joint venture with a large developer in Manhattan. Click link to article.

The pandemic economic crisis and the great recession of 2008 both showed that real estate development is not always a guaranteed financial success, and that risk is borne by the owners of a joint venture. Of course, not all joint ventures are created equal and there are many differences that exist between those that are tied to affordable housing (and its regulatory framework and oversight) and those that are market rate residential.

In any case, the risks of any real estate strategy should be outlined at the outset of a potential development deal so that the church is well informed and aware of what can go wrong in any structure it decides on – and protections are negotiated and in place in the event that they do, no matter how small their likelihood.

Please contact us to learn more about the risks of joint ventures and the alternate transactional structures that might yield the same result … with less risk.