3mm in Non-profit LP capital.. how would you structure a deal?
Hey guys-
3rd year associate at a multifam principal shop despite what my title says. Just had a 501c3 reach out that I was involved in during UG. They’re looking for help in purchasing a sorority house with their funds. They have 3.5mm in equity and are willing to go up to 60% LTV.
I’ve been researching heavily how I can negotiate a GP interest into the equity stack. I can raise 100-200k from family/friends quickly. Thinking of proposing a standard 1% acq. fee plus AM fees (providing I can get a signed PSA for a site that meets their standards). I would look into forgoing a promote.
How would you guys tackle this?
First I would ask if you can even do that. Many non profits prevent these types of things. Also what kind of sorority doesn't have a national org that deals with this kind of thing?
This - also hilarious everyone saying why would you forgo a promote. They're looking to buy a long-term hold for the organization's members to live in at a low cost, where the hell are you going to generate a promote from if they don't exit for 30+ years, if ever (there are some long-standing fraternity houses that have been around since the 1800s)? I guarantee you annual dues and rent is not going to generate a significant enough profit to pay you out a promote, and even if you can crystallize on the value creation it's not going to do you much good if they're cash flowing a 2% CoC every year.
Frankly, I don't think you'll even be able to negotiate an AM fee on this, or even an opportunity to put in your own equity (which I'd recommend against anyways - greek houses aren't operated to generate significant profits). They're just asking for help in the acquisition process. Probably just the acquisition fee.
I figured an AM fee was a long shot. I’m glad you understood the reasoning for no promote structure. Realistically an acquisition fee with no personal equity is the most participation I’ll get in this deal..
Not necessarily a bad thing given what the asset would be. It's not something I'd want to put equity into personally. If they end up spending $2-$3M or more on it that's not a bad little bonus for you. You could always push for an above market 2 or 3% acquisition fee since it's one off deal with no other upside on your end.
Why would you forgoe a promote?
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