What are the legalities of being a RE Syndicator? Do you need a broker's license to collect acquisition, DD or management fees?
I am in the process creating an investment platform where I will essentially create deal flow pipeline and network relationships, gather all due diligence materials, do a preliminary back-of-envelope underwriting to see if meets parameters before sending over to my colleagues who will see if it should go to next level of underwriting (ie progress to investment stage, etc).
My question is: What are the legalities in me collecting fees on this type of work?
Do i need to license to collect an acquisition fees of say 1-2% of total deal?
And, what would be the typical ways and formats (and %'s) that one would get paid under such a paradigm?
Want to add that the deals we are looking at will be all over the United States. So, if we buy an apt building in Arizona must I be licensed there to collect a fee in Florida where I am working out of?
Am I acting as a broker here, a finder, a principal (who is adding sweat equity via creating deal pipelines, project management, financial underwriting, due diligence) or some hybrid of the above?
And, in order to collect a FEE or Equity or some mix thereof must I be a licensed party to both collect a FEE/REMUNERATION (ie, if i am given a fee without a brokers license have i transgressed any penal/civil law) and compel payment thereof (via breach of contract/agreement case later on)?
No, you don't need to be licensed to syndicate deals at least to my knowledge. As for fees, equity contribution split's and carried interest it depends on who you are trying to get money from and what type of deal it is. I have seen on Longterm NNN deal a syndicator getting squeezed by a sophisticated investor with getting 2% acquisition fee, no carried interest, and a 25% GP equity contribution requirement. He really needed the money, though. On the other hand, I have seen people get away with 6.5% coupons on 25% underwritten IRR deal because the Investors were extremely confident in the GP's abilities. People in the industry have all types of deals. A friend of mine is paid a salary by a group of investors to syndicate deals for them. Having said that I am unsure to what extent are you actually going to be involved? Are you simply raising money or are you cradle to grave going through and managing these RE properties?
Thanks. My original account won't let me in, and created this to answer you (sorry for delay).
I am in the Miami area, and I am doing everything from creating deal pipelines from as many sources as I can gather/fathom and making contacts/relationships with commercial brokers, seeing what properties meet our acquisition criteria, doing first to second cut excel modeling and collecting due diligence materials ---- then I am sending over to my colleague (who has the equity connections and debt connections) to basically say yea or nay. After that, I will be involved with pre-closing due diligence and generally making sure everything goes smoothly (swing-man capacity so to speak). Rinse and repeat.
I am only working with this one small group of investors in Miami although our focus will be national in terms of properties.
I am not a real estate broker and am working exclusively on this project with the idea that my compensation will be either/and: Acquisition fee (1-2 percent i believe is the norm, although if you have guidance on that - appreciated) and/or equity in the deal.
I do not believe i have to have a broker's license to collect fees (on a per deal/property basis) or to be given equity on a deal-by-deal basis since I am only working for this one group AND my fees would apparently cover the 500 or so deals that I must look at to find the 1 or 2 which would ultimately pass investment criteria and overall muster. What are your thoughts?
Also, if you could offer your opinion, what is the typical metrics and methods by which someone tasked with my duties should/could structure compensation given I am on the "you only get paid, if we are successful' model?
As I said before I would assume some sort of carried intreast waterfall distribution model would make sense. How sophisticated are you investors? Are they doing the deal because they believe in you and your friends abbility to run the deal?How exactly do you plan on managing these properties? What percentage of the equity contribution are you planning on putting in? What is your team's experience? These questions matter as to what type of promote you should be getting. As for acquisition fee it should depend on how you structure the promote and the deal you make with your investors. As I said before for syndication there is no industry standard.
How sophisticated are you investors? Experienced and Sophisticated. They have more than the two of us in terms of practical experience. Each has around 20+ years of regular investing under their belt.
Are they doing the deal because they believe in you and your friends ability to run the deal? They are putting myself and my friend on the front lines because they are confident that we have the skills to locate deals that are off market, create relationships to get new, novel deal flow, do the first and second level excel underwriting and manage the first and second level due diligence material review. The third step would be to go to an informal investor committee where final decisions would be made.
How exactly do you plan on managing these properties? We would delegate this to a local management company on a case by case basis given the acquisitions will be geographically unique.
What percentage of the equity contribution are you planning on putting in? At this point we are both dedicating ourselves 12-14 hours a day on this and will be giving solely "sweat equity" until my associate and I (both Miami based) build up enough cash equity to contribute both sweat equity and our own cash.
What is your team's experience? Both of us have worked for several years at small RE PE groups in and around FL.
"As for acquisition fee it should depend on how you structure the promote and the deal you make with your investors. As I said before for syndication there is no industry standard."
--> Ok, so whether we are buying a shopping center here in Miami or a multifamily package in Arizona - your opinion is that, given the above facts and circumstances, we do not need to worry about having a broker's license or some other license to collect an Acquisition Fee? Please Excuse my harping on this nuance but both my associate and I have never been in the position of being on the front lines of the business operation and have been typically compensated with a straight salary plus a year end bonus (which was not based on any specific deal but rather global view and was solely a percentage bump on our overall salary). Maybe this explains our naivete in this area. Again, thank you greatly.
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