Developer Fees
I've purchased some land out right and have been talking with a developer friend of and I ask him to look at the project with me. I have a little experience in this filed but not a lot.
His first pitch says that I contribute 90% of the land value ( undeveloped 5 mill ) ( developed 50 mill ) . Approx 10 mill in construction total loan and cost and two years. Not a complex project. His contribution to be 10% ( the development fee ). Then a 60/40 split going forward , profitability after year two 3 mill a year to about 4 mill by year 5.
The property is in a Oppurtunity Zone as well. So after ten years could essentially sell off tax free for a sizable figure. 80/100 million.
HELP / Thoughts ? Suggestions ?
What is an Industry norm ?
10% is unheard of. I'd say 4-6% max on this size deal.
think he meant 10% is the gp equity portion.
So he contributes 10% equity but gets 40% of the returns in exchange for doing the developing. That's generous usually you want to incentivize the gp to perform with a promote.
Who is putting up collateral for the loan? Hard to judge without more info but if you're risking your land as collateral you need a higher return for the risk and want to incentivize him with performance bonuses based on irr hurdles usually
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