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 ?

Comments (3)

Jun 26, 2022 - 10:34pm
FunnyUsername, what's your opinion? Comment below:

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

Most Helpful
Jun 27, 2022 - 1:47pm
Ozymandia, what's your opinion? Comment below:

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