Do any RE funds charge a debt placement fee when securing new loans?
Curious if anyone has seen this in the market, at your shop or elsewhere.
I work at an industrial real estate investment firm and was wondering why we don’t have a debt placement fee at the fund level, similar to how funds charge property management or acquisition fees. The idea would be to charge a small fee to the fund (paid to the operator/manager) whenever new debt is sourced or refinanced, as compensation for managing lender relationships, underwriting, negotiating terms, etc.
We already pay debt broker fees, so this could be structured as either:
• A small bps-based fee on top of the broker fee, or
• An all-in fee (say ~0.6% of loan amount), from which we’d pay the broker (e.g., 60 bps total, 35 bps to broker, 25bps retained by operator).
Is this a common or accepted fee structure among private real estate funds or operators? If so, what’s a typical range you’ve seen (bps on total debt, flat fees, etc.) and how is it usually positioned to LPs?
Would appreciate hearing if other groups do this and how investors generally view it.
Based on the most helpful WSO content, charging a debt placement fee at the fund level is not a widely discussed or standard practice among private real estate funds. However, there are some insights that might help you evaluate this idea:
Broker Fees vs. Operator Fees: Debt brokers typically charge fees for sourcing and structuring loans. For example, on a $400 million construction loan, brokers might earn between 0.25% and 0.50%, with exceptional cases reaching up to 2% for highly complex or challenging deals. If your fund were to add an operator-level fee on top of this, it would need to be carefully justified to investors.
Investor Perception: LPs are generally sensitive to fee structures, especially if they perceive them as duplicative or excessive. If you propose an all-in fee (e.g., 0.6% of the loan amount), transparency about the value added by the operator (e.g., managing lender relationships, underwriting, negotiating terms) would be critical. Positioning it as a necessary cost for ensuring optimal financing terms might help mitigate pushback.
Market Precedent: While not explicitly mentioned in the WSO threads, the idea of charging a small bps-based fee on top of broker fees could align with practices in other areas, such as acquisition or property management fees. However, this would likely depend on the specific fund's strategy, investor base, and competitive positioning.
Fee Ranges: If implemented, a fee in the range of 25-35 bps (as you suggested) could be reasonable, provided it reflects the actual value added by the operator. Anything higher might face resistance unless the operator is demonstrably adding significant value beyond what the broker provides.
Ultimately, while this fee structure isn't highlighted as common in the WSO discussions, it could be worth exploring if you can clearly articulate the benefits to LPs and ensure it aligns with market norms.
Sources: Real Estate Sponsor Fees, Debt Placement Fees
lol, you can try to add it to your model, but any sensible LP is going to remove that shit. Reasonable to add/account for if you're actually using a debt broker, but stupid if you're just calling your lenders and trying to secure a fee from that.
i mean, if you have a designated capital markets team, not really crazy to add that in.
Yeah but from OPs post, it doesn't sound like they have an in-house cap mkts team, and a lot of times, these small operators / developers lean on institutional LPs for the debt (not necessarily for the guarantees).
In my experience, GP's are pretty shameless in charging fees for anything - so a refi fee is not out of the question. To their credit, you only get what you negotiate in life, so good on them.
A good LP should push back.
What we did at my previous employer is run the debt origination process internally and charge a below market debt placement fee. Our "pitch" to fund investors is that somebody has to originate the debt, and if we are going to invest to have an in-house capital markets team, we should be paid a debt placement fee. However, you'll benefit because it's a lower fee than if we had hired JLL/W&D/etc. Now, was that a rose colored glasses argument? Yeah a little. I would not charge a fee on top of a debt brokerage fee.
This is what we do. We only charge if we source the debt ourselves, sans broker, and in that instance, it is below what a broker would charge.
Yes, some real estate funds do charge a debt placement fee when arranging new financing, it’s typically meant to cover the work of sourcing, negotiating, and closing the loan. However, not all funds do; it depends on the fund’s structure and how management fees are set up.
Quo qui rerum qui. Sequi quae distinctio eum fugiat. Eum consequuntur sed optio dolor ut voluptatem. Modi qui sed mollitia qui et ipsum. Libero consequatur corporis quia sapiente laborum. Dolores nostrum rem qui vel dicta. Et ut explicabo illum eligendi.
Iste quo vel consectetur nihil qui placeat nesciunt. Natus quam ut quia quo molestias magni.
Rerum deserunt explicabo eos ipsam delectus. Possimus magnam assumenda accusantium.
Harum voluptatem rem facilis nobis aperiam. Quos vero praesentium repellat nobis totam deleniti labore. Dolorem repellendus ut quia commodi totam assumenda ut. Itaque deserunt ut aut alias veritatis impedit qui. In sunt quas dolor impedit. Saepe eligendi non quod rerum dolores aut ut.
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...