Would kindly appreciate folks sharing some deal structures they have seen in the market place for LP capital on one off transactions. The structure I am familiar with seems fee heavy but want to know what others are seeing in the market place. Below are terms I have seen a syndicator use for a deal:
Acquisition fee: 1% of purchase price Asset management fee: 1.5% of equity Pref: 8% yearly pref with 70% /30% split LP / GP after Project management fee for value add: 5% of renovation costs for value add
Is this a normal structure or is it aggressive??!? On a $10M deal with 40% equity raised assuming 2 year hold with exit at $13M (assuming you have enough NOI to service interest only debt not to make this complex). That would be $100K acquisition fee day one, $60K * 2 = $120k fee for two years of asset management to be paid each year. Then it would be $13M exit price - $6M debt - $4M equity to get proceeds of $3M. Then 8% pref is $320k for 2 years at $640k which leaves you with $2,360K before 70/30 split. Sponsor has no equity in the deal, is this super aggressive.
Any thoughts on structure in doing one off deals and raising capital from friends and family would be kindly appreciated. Saw this at the shop I just left and it looks mighty aggressive to me but don't have a comparison. I would think the sponsor should put 5 to 10% of total equity in the transaction and potentially a lower pref. My gut also tells me they are able to attract investors by offering a higher pref of 8% to unsophisticated investors who only see $$$ sign due to 8% pref and pitch of 15% IRR.
Here's our LP JV equity deal we cut which is advantageous to us below. 90/10% LP/GP equity split. Base Capital is pro forma budget peak equity. Additional Capital includes force-majeure and commodity cost overruns funded pro-rata by LP/GP. GP solely funds 100% of all other Cost Overruns. Both parties receive a 12% preferred return on Base Capital and an 18% preferred return on Additional Capital. Development fee equals 3% of total costs, no other fees.