Hey everyone,
I was curious to know how you structured your first deals that you did on your own or how you would structure deals you do on your own in the future? (This is assuming you have investors and it wasn't all your own money)
Some additional questions for those of you that have done a few deals outside of your 9-5:
- What product type?
- What was the equity amount of your first few deals? How did you raise the funds?
- How did you finance the deal?
- What was/is the hold time on your deals?
- Did you charge fees? If so, what fees and how much?
Would love for this to be a discussion so please add anything else relevant to the topic.
Going through this process right now at a new shop trying to establish a track record with basically no balance sheet. Tied up the deal (ground up multi, 225 units) with a purchase deposit using personal assets...located an LP willing to fund pre-dev costs during the pre-closing period AND flash their balance sheet/liquidity for non-recourse construction financing in exchange for a fee. Total equity check of approx. $17M. Long term hold with crystallized promote post-stabilization.
Having looked at a few of these (albeit in a short time) it already feels pretty typical to a) give up a fee in exchange for balance sheet strength, b) give up a significant amount of promote (up to 50%) to get a guarantee on the note and/or satisfy bank liquidity requirements.
Our position so far has been to be as aggressive as possible on development fees. This keeps the lights on, but more importantly serves as the future balance sheet that will allow us to tie up more deals in the future (deposit $) so that we don't get overextended.
What do you mean by "crystallized promote"
On a long term hold deal that is 10+ years our IRR gets smushed, so there really is no way to hit your promotes in that time period. Crystallization as a concept lets you do an appraisal or valuation of the property at stabilization to do a moment-in-time IRR calc for purposes of determining the promote payouts consistent with the timing of a more typical merchant deal where you would flip out at stabilization.