What specifically does the developer charge fees of 3%-5%? I know construction, consultant, and permitting fees, but do they charge on the brokerage fees or financing?
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Depends on market - standard in Canada is typically all costs other than financing costs and sometimes land.
Depends on the structure of the deal. If we are doing a development for a fee w/ no upside then we typically charge 5.0% on all cost except financing.
If its our own deal and we are raising capital we typically charge 3-5% depending on deal size and 1.5% of the loan amount for guaranteeing the loan.
Hi Pink Barbie, can I pm you to asking you questions about guaranteeing the loan fee?
Yeah no problem
One other questions is brokerage commissions considered in a project related expense. Do you account for it in the 70% ?
Any expense to get the project from a piece of dirt to leased up and stabilized is a project expense. If you’re self brokering then it could be debated but we don’t charge if we sell broker.
I should clarify a bit more from the second question. I understand that says for condos sales expenses are incorporated in the development fees but does the bank in Canada which finances 70% of total cost and 65% in the us deem sales cost part of the total cost?
we charge 20% of net proceeds or net sales - project cost as a merchant commercial developer
4% of total project costs
Appreciate everyone's input. Are all these excluding construction management? Right now I'm underwriting 3.5% development management and 3.5% construction management.
Hi Freelancer, I know I am the one who posted the question, so your fees are within standard range, but I am assuming some of these guys are going to need more context. CM fees my understanding are 2-10% of construction costs, it varies depending on type of job (ie industrial, multi residential, office), whether the developer is builder and construction budget. 3.5% is within range for dev fees but it depends on various factors too; maybe the developer negotiated a lower preferred return or better split for reduced fees, track record of developer (more established the higher fee they will take), type of project (smaller project can be similar amount of work to large project so they will take a higher % fee than larger project).
The short and rather unhelpful answer is that it depends on what you can get away with. A sophisticated investor is probably not going to let you take a dev fee on capitalized broker costs, but if it is a small deal and you syndicate equity you might get away with it. You also might have trouble getting investors to a number they like if you're inflating costs by that much.
Financing costs seems easier to justify, if only because the construction loan is such a huge part of the whole development process. I guess the way I'd look at it, if I had to have a hard and fast rule, is "am I charging a fee on a part of the deal that has to be included for me to finish this building?" I think you can make that argument far more strongly for the financing than you can for the post-construction brokerage fees.
Thanks this was a helpful answer, but I should clarify I was referring to broker fees for condos, which can be pre-construction condo sales or during.
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