I'm considering talking to a few debt/equity placement firms regarding job ops, after spending 10+ years on the principal side doing acquisitions. Looking at boutique type groups rather than the HFF/Eastdil/Cushman types.
At the point in my career, I'm sorta burned out on the acquisitions side, I enjoy underwriting and structuring and poking holes in assumptions etc, but I'd be nervous about coinvesting any personal capital in any deals I've looked at since 2013.
That being said, I'm fairly naive to how boutique capital advisors comp their guys (when I say boutique, I'm thinking of a group like Ackman Ziff, for example).
From a fee perspective, I heard once that industry standard is 1% on debt placement, 2% on pref or mezz, 3% on equity. Splits go 50% to the house, 25% to originator, 25% to closer (what's the difference??).
Is that pretty accurate as far as what to expect? Would I be naive to expect any form of salary/draw at one of these places? Are expenses (business development, client wining and dining, etc) netted out of fees, or so firms generally cover that type of overhead for their employees out looking to generate business?
Just don't want to seem totally ignorant as to how these shops operate when I'm speaking with them.
Not all the answers you're looking for but here's some help.
The fees are a lot lower % wise for big deals. It's more like 30-50 bps for debt and 100-150 bps for mezz or JV equity.
Savvy borrowers usually get even better deals like a cap of $300K for example and/or only pay if it's a new relationship.
If you do decide to do debt/equity brokerage I would try to focus on bridge deals / value-add specifically. With core deals once you introduce the relationship to a life co and the borrower has loan docs they will go direct and cut you out as long as the soft talk pricing sounds market. Same thing with construction loans for banks and same thing with JV equity for developers. Mezz is weird, most smart borrowers really don't want it even though there are a lot of capital sources chomping at the bit to provide it. It is always tougher to get financing for bridge deals and that's where you can actually add value.
Spot on across all points. I've seen fees more in the range of the ones you mentioned than OP.
I just left a boutique debt/equity shop in a major market to go into development.
As a mid-market shop, our average deal size was probably ~$15mm, but really anywhere from $7-$40mm was our bread and butter (so not necessarily "big" deals all the time but good sized ones for sure) . We would get a full 100bps on some deals, but I think we really averaged out in the high 60's/low 70's. For equity, we would generally see 200-300bps.
Our split was about 50% to the house and 50% to the broker (the analysts were the closers so no real split for that) but this was after brokers ate their way out of initial annual "desk fees" in the mid-$100k's (maybe ~$150k) (note: I have never heard of another shop charging these fees so I wouldn't expect this to be the norm).
You could certainly expect to receive a draw; in fact I would even say its likely you'll get one. For us, all expenses related to clients were completely covered by the house, but parking downtown was not included.
Thanks for all the feedback.
When your group charged these "desk fees", were they supposed to represent overhead charges they were looking to recoup? Was part of it a draw/salary to the employee? Is there any sort of industry norm for what kind of draw to expect?
I've heard that certain firms (George Smith for example) don't/won't pay any type of draw to new employees (here's a desk, phone, and laptop and that's all you are getting). For awhile, I heard they were even looking to reduce/eliminate health and dental, which makes me wonder just how bad some firms can be.
I'm willing to bet the desk fees more than covered overhead, but I guess that would be the idea. The split to the house must have just been gravy for the broker-owners. But no, the draw to the new brokers is actually separate. So if you had say a $50k draw, with $150k in desk fees, you'd have to make $200k in fees at least. Don't really know of an industry norm.
Do all this boutique shops usually only offer commission based positions?
I talked to a guy at a smaller firm in a major market and his analysts are 100% commission.
At my shop the brokers were 100% commission and the analysts were paid a salary and then a discretionary bonus by the house. I believe some shops leave it to each individual broker to pay their analysts something for helping them out, but that's not how mine worked.
Fairly accurate across most points but some firms do have senior salary / bonus positions. Ackman-Ziff for example has both, Eastdil has only salary bonus and I think Cushman has only commission. Fee definitely depend on size of deal but mid-market deals 1 / 2 / 3 is fairly accurate.
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