Someone says that Japan has torn-down-building culture for real estate development. Tokyo Station area is a hot spot for redevelopment lately. You could see many redevelopments which are changing a landscape with high-rise buildings in the middle of Tokyo. Like other investment, real estate development is a popular type of investment. It’s almost like M&A.
You will start from executing Non-Disclosure Agreement to make negotiation confidential. After discussing and deciding critical terms and conditions of the transaction, Memorandum of Understanding comes up to record the progress of negotiation generally not legally binding those terms. Even though it’s “not legally binding”, this process is very important for business since it’s in writing. This has a meaning that each business partners reached out to agreement in specific matters. Therefore, it betters to have a lawyer in this phase since it’s not easy to change it in practice after executing MOU.
Then, you will do Due Diligence in terms of Legal, Finance, Tax, and so forth. You’ll analyze compliance of the property, the property per se to be developed, and simulate business plan for the development to calculate Internal Rate of Return or Cap Rate. After carefully coordinated analysis, you will execute further agreement with business partners. In case that the project size is huge, you want to minimize risks, or you need business partners’ expertise, it could become Joint Venture Agreement to do the project together.
If several business partners participate in the projects, the negotiation becomes complexed since each party has to allocate their risks appropriately for their own business. Hence, it’s necessary to negotiate many matters. Financial structure including Debt Equity Ratio, Shareholding Ratio should be must while you will also discuss Project Time Frame, Development Cost, and so forth which will be attached to the Joint Venture Agreement.
Something unique to Real Estate Development unlike M&A is that it will construct a building. It requires to have construction agreement to build a property. You have to take care of the costs, specifications, and any other things related to the construction. The bigger the project size is, the more impact your project will have.
Therefore, it’s indispensable to negotiate with every business partner to anticipate various situations, allocate risks appropriately between business partners, and make the Real Estate Development completed. Since you have various kinds of business partners such as contractors, co-investors, lenders, you have to have clear understanding about where you are standing.
Hattori Law has solid experience to handle Real Estate Development with foreign investors. It will enable you to have clear legal insights of the compliance, negotiation progress, and allocation of risks during Joint Venture Negotiation if it’s the case.
Hattori Law is proficient to move you forward.