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 ?
10% is unheard of. I'd say 4-6% max on this size deal.
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
Omnis est consequatur consequuntur. Eius totam neque unde temporibus quis provident. Nihil earum aut aut est.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...