Global real estate development, which has never been simple, has in recent years become more complex. Building “green,” once a choice and a differentiator for developers, is increasingly the only way to satisfy new regulations, consumer preferences, and investor expectations. New technologies—many powered by recent advances in AI and generative AI (gen AI)—offer huge opportunities but can require detailed knowledge. Higher interest rates, supply chain snafus, and greater market uncertainty add to the complexity.
This new set of demands requires that real estate developers respond with long-term vision, technological savvy, and capabilities that are not always their core strengths. But there is a way to overcome the current challenges: an approach we call “unconventional partnerships.”
Unconventional partnerships in real estate are innovative and nontraditional collaborations that extend beyond the usual developer–contractor relationship. Typically, a developer hires a service provider (for example, a security company) or buys a set number of products (such as solar panels) and contracts for a specific number of projects. By contrast, unconventional partnerships involve more sophisticated cooperation mechanisms—including alliances, joint ventures (JVs), and acquisitions—that enable cross-industry collaboration and vertical and horizontal integration. Real estate developers may enter into these partnerships with brands, contractors, service providers, or technology companies (including those that specialize in AI and gen AI) to create and apply solutions. As an example, a megacity and a sustainable waste management company formed a JV that helped the megacity access solutions tailored to its unique needs, enhance its reputation for sustainability, and overcome supply chain problems.
Unconventional partnerships offer real estate companies three primary benefits. First, the opportunity to invest in new technologies and solutions can attract a wider pool of investors to real estate projects. Second, although they can imply up-front costs and the added risk of starting a new line of business, unconventional partnerships can be financially rewarding even in the short term. And third—and perhaps most important—these collaborations can help developers attain capabilities, expertise, and knowledge that expand the traditional definition of what a developer does.
It might sound counterintuitive to recommend unconventional partnerships to real estate developers. After all, developing real estate properties is their primary expertise, not green energy, gen AI, or sustainable operations. But it is for this very reason that we see these partnerships as crucial to taking the lead in sustainable real estate development, digitally rewiring, and overcoming supply chain dilemmas.
In this article, we explore why real estate developers are increasingly partnering in nontraditional ways and with nontraditional sectors, provide recent case studies, and suggest five steps for pursuing such collaborations.
Amid industry headwinds, real estate developers are exploring broader and deeper partnerships
In a recent McKinsey survey of 50 chief investment officers at large global real estate companies, nearly three-quarters of respondents identified high interest rates as a major challenge. Fluctuations in costs or materials and services are a problem for 84 percent of respondents. And more than 60 percent identified limited technological expertise and resistance to change as challenges (Exhibit 1).
These difficulties help explain why, in recent years, real estate developers have increasingly pursued deals with a wider array of partners (Exhibit 2). In 2022, roughly 30 percent of real estate partnerships consisted of alliances, JVs, and M&A with partners operating in noncore industries such as hospitality or environmental services. That’s up from roughly 20 percent in 2013. There is also a greater share of partnerships with companies operating in tech or alternative energy sources.
Developers recognize that they are no longer just in the business of building square footage. Instead, they are tasked with integrating sophisticated technology—which increasingly involves machine learning—and a high standard of customer experience. Developers have an obligation to decarbonize the real estate industry, both through greener building materials and more energy-efficient operations. Deeper partnerships with diverse companies and industries can help developers execute on this expansive list of goals.
Four unconventional-partnership case studies
As the following case studies demonstrate, one of the greatest benefits of cross-industry collaborations is that they allow developers to enter into previously unexplored sectors, enabling the creation of new, more resilient, and sustainable business models. These relationships are also a means to access proprietary technologies, materials, and talent that could otherwise be challenging to obtain. Additional motivations for unconventional partnerships include wanting to bolster local economies, attract a more diverse pool of investors, and diversify revenue streams.
A European developer’s joint venture with a clean-energy producer
A European developer announced a joint venture with a clean-energy producer to expand solar-power production on its properties, aspiring to produce roughly ten million kilowatt-hours (kWh) of electricity per year and to save roughly four million metric tons of CO2 equivalent.
If the developer had sought to produce this much clean energy independently through contracted suppliers, it likely would have been more costly and hindered by supply chain issues. Instead, the JV has enabled the developer to cost effectively increase its production of renewable energy by more than 200 percent over two years and to produce more than ten million kWh of renewable electricity, exceeding the initial target. These results have boosted the developer’s credibility and appeal among sustainability-conscious investors and customers.
A megaproject’s joint venture with an automotive start-up
In 2023, a megaproject invested a substantial sum in an automotive start-up and announced a joint venture covering development, manufacturing, and infrastructure.
The traditional route would have been to simply contract with the start-up for product delivery. However, the megaproject developer chose the JV to build its in-house capabilities, believing this will help the company become more knowledgeable and adept at future technologies. It also projected that the JV would yield a new and diversified revenue stream. Another consideration for the developer was the impact on the local economy. The JV means that jobs which might have been created in another country will instead be created locally: part of the plan is to establish a regional R&D and manufacturing headquarters. The developer reasoned that a transfer of knowledge and industry to the region could only benefit the megaproject in the long run.
A new megacity’s joint venture with a sustainable waste management company
In 2023, a North African megacity developer announced a JV with a sustainable waste management company, aiming for an 80 percent landfill waste diversion rate through an integrated waste management system.
The traditional approach would have been to contract with a waste management company for a set period of time. But because the megacity developer has high aspirations for sustainable waste management, leadership believed that a partnership would help it develop the long-term capabilities it needs.
The waste management company scaled its capabilities specifically to meet the needs of the megacity, something it may not have achieved without the resources and assurances provided by the JV relationship. This scaling gives the megacity an advantage in securing the materials and services it requires at a time when supply chain problems might otherwise cause costly delays. The JV also incentivizes the waste management company to focus on innovating and customizing its operations to the unique needs of the megacity.
Another important consideration was reputation management: by getting into business with a company known for excellence in sustainable waste management, the megacity developer was able to bolster its own credibility. Its leaders believe this will attract investors for whom sustainability is an important consideration, thereby widening its appeal beyond traditional real estate investors.
A developer’s equity alliance with a security tech start-up
A North American real estate developer invested roughly $60 million in an equity alliance (a form of alliance substantiated with shareholding) with a security tech start-up. The goal: to install smart-access hardware throughout some of the brand’s marquee properties and operate it using proprietary access-control software and visual-auditing capabilities.
The developer could have simply contracted with the start-up to provide installation and the ongoing services that are offered to all customers. However, by forming a deeper partnership, the developer may be able to customize the start-up’s proprietary software to serve its evolving needs. By working in tandem with the start-up, the developer expects to create security innovations that it can apply to future developments, giving it a competitive edge.
The company also expects the partnership will help it develop in-house capabilities and technologies that will enhance the customer experience it offers. Additionally, the developer expects the venture to attract a new class of investors attuned to technological innovations.
Five steps to rewarding unconventional real estate partnerships
Developers can begin their journey toward rewarding unconventional partnerships by thinking deeply about the long-term future of these collaborations and how the resulting products and solutions might be applied to subsequent projects. Other considerations include what capabilities they can gain from the partnership and what the impact may be on stakeholders, including workers and investors. Once some of these fundamental questions are answered, five steps can help ensure successful collaborations.
Conduct specialized due diligence
Unconventional partnerships may involve new or untested business models that differ significantly from traditional real estate ventures. These new approaches bring unfamiliar risks in technology, regulation, and operational alignment that demand close examination.
Collaborations with nontraditional partners often involve navigating new regulatory environments (sometimes in multiple jurisdictions or countries) or developing contracts with atypical terms. For example, tech-driven partnerships introduce concerns around data privacy, intellectual property (IP), and long-term operational sustainability that need close evaluation. Partnerships substantiated by noncash assets (such as technology or land) also require careful assessment of valuation methodology to ensure fair market value.
To address these unique risks, specialized diligence activities are critical. These could include conducting a tech infrastructure assessment to evaluate the capabilities, compatibility with real estate operations, and scalability of any tech components the partner brings. Since many unconventional partnerships involve data sharing (for example, of tenant data or market analytics), it’s important to assess cybersecurity protocols and compliance with data privacy laws. IP rights audits may also be necessary to confirm ownership, usage rights, and protection of any IP involved, particularly when integrating proprietary tech into real estate assets.
Determine the partnership type
While unconventional partnerships can take many forms, the three most commonly seen mechanisms within the real estate sector are acquisitions, JVs, and strategic alliances. Selecting the appropriate deal type is pivotal for real estate developers, whose strategic directions and risk appetite will determine which mechanism makes the most sense. Clearly defining roles, equity stakes, and profit sharing approaches within the chosen partnership type can ensure clarity and align interests.
Define, review, and adapt shared objectives
While clear and aligned objectives are crucial to any partnership, they become even more critical when the parties are largely unfamiliar with each other’s core operations and have historically pursued different paths.
As AI and gen AI become more powerful and flexible tools, developers may want to seek out partners to help them rewire their companies for a new digital era. One AI use case involves creating comprehensive decarbonization plans for real estate portfolios using an algorithmic approach. Others include improving design processes, synthesizing more complex data to inform investment choices, and improving building-management cost efficiency. Because use cases are often novel and untested, well-defined goals, based on common objectives and values, are crucial. By regularly reviewing and adapting their shared objectives, partners can ensure their collaboration remains dynamic and aligned with internal aspirations.
Develop a strong governance model
Structuring governance effectively while recognizing a partner’s capabilities and culture is crucial to the success and longevity of the partnership. Illustrating what can go wrong, a JV between a real estate developer and an investment group was imperiled when project delays prompted the investor to try to sell its stake. At the heart of the conflict were governance issues, further fueling a mismatch between the acceptable timeline for each of the partners and the consequences of delays. Primary considerations include the following:
- The management team. Establish a framework that defines roles, responsibilities, and decision-making processes. This includes setting up a joint board of directors. Reduce conflicts of interest by appointing an independent management team dedicated to maintaining the partnership’s operational focus.
- Culture. Recognize and bridge cultural differences to create a cohesive work environment. This can be challenging when merging the brick-and-mortar world of real estate with, for example, a software company. Establish regular communication channels among the partners and management to ensure transparency and build trust.
- Risk. Managing risks is paramount in unconventional partnerships. Real estate companies often need to be sensitive about regulatory and reputational risks that may be foreign to non-real-estate companies. Partners may want to consider risk workshops that unite business and legal teams. Risk committees embedded within the supervisory board could craft mitigation strategies alongside a dedicated risk team for systemic intervention on an ongoing basis.
Establish performance metrics and exit strategies
Partnership agreements should include the following two elements:
- Performance metrics. Define and agree on performance metrics to regularly assess the partnership’s progress toward strategic objectives. This helps identify and resolve issues in a timely fashion.
- Exit plan. Build clear exit strategies and procedures into the agreement should one or both partners wish to dissolve the partnership. Plan for leadership succession within the partnership to maintain stability.
Unconventional partnerships can help real estate developers build capabilities, expertise, and in-house knowledge in big, must-win areas including sustainability and technology. They can also help developers pursue near-term goals, including attracting a new cohort of investors or creating novel revenue streams. Whatever the immediate target, companies that partner in pursuit of cutting-edge strategies can do more than just meet today’s standards and market expectations: they can evolve into future-proof real estate developers.
