Small-Scale Property Development: Special Purpose Vehicles (SPVs)

Small-Scale Property Development: Special Purpose Vehicles (SPVs)

‘Special Purpose Vehicles’, or SPVs, are becoming more common as a means of operating small-scale property developments.

What is a Special Purpose Vehicle

A Special Purpose Vehicle (SPV) is a legal business structure which has been created for a specific, usually limited, purpose and which has specific, usually limited, powers. It can be thought of as a business that has been tailor-made to do only one specific thing.

Why would you use a special purpose vehicle?

Whilst we consider every client situation on its own individual merits, we can see three reasons why a special purpose vehicle might be appropriate:

This arrangement allows the risk of each individual property development to be ring-fenced. This security is helpful when the Group undertakes a number of projects, especially when there are different investors or lenders involved from project to project.

By having a separate structure for each individual project the management, control, and risk can be concentrated within each individual project. This also allows for different management and leadership teams to take responsibility for each project. It also makes is easier to reward individual project success.

By limiting the business structure to only one project it makes it much easier to openly share information with all parties concerned with an individual project.

Some reasons you might not want to use a special purpose vehicle.

Taking account of individual circumstances can dictate that a special purpose vehicle is not appropriate:

When the Group is working on several developments which can be seen as part of a portfolio there can be pressure to assess and control all of the developments as a single entity.

Where there is a need for cross-funding amongst various projects it can impossible to separate each development into its own special purpose vehicle.

When there are no third-party investors there is very little benefit in separating each development into a separate special purpose vehicle. The SPVs add administrative complexity, but provide no benefit to the Group owners.

Practical considerations

It’s helpful to step back and consider are the overall aims of the business owner, and then define clearly why the new project will be undertaken.

Get in touch

If you would like to know how this arrangement might work in your business, just get in touch to arrange a meeting with one of our chartered accountants.

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Comments (2)

  • Jake Reply

    Is there a cap on how many JV investors can go into a Spv



    July 6, 2020 at 000562020-07-06T07:06:56+00:005146Mon, 06 Jul 2020 07:06:56 +0000AM%Mon, 06 Jul 2020 07:06:56 +0000128x
    • David Charles Reply

      Hi Jake, Thank you for your enquiry. I have sent you an email reply. Regards, David.

      July 6, 2020 at 000332020-07-06T08:49:33+00:005146Mon, 06 Jul 2020 08:49:33 +0000AM%Mon, 06 Jul 2020 08:49:33 +0000128x

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