Guaranties, Capital Markets, and Standard Co-GP Splits

When it comes to guaranties, capital markets, and co-GP splits, here's what the most helpful WSO content suggests:

1. Firms Offering Balance Sheets for Guaranties:

   • Firms that provide balance sheet support for guaranties (e.g., completion, bad boy carveouts, environmental indemnities) often come in as either LPs or co-GPs.
   • For LPs, a fee of up to 2% of their equity contribution is common, which gets capitalized into the deal. This fee compensates them for flashing their balance sheet to satisfy lender net worth and liquidity requirements.
   • Co-GPs or guarantor entities may demand a share of the promote, often around 30% or more, depending on the deal structure and risk profile.

2. Equity Placement Fees:

   • For a ±$15MM equity slug, market rate fees for equity placement typically range between 1-2% of the equity raised.
   • Discounts may be negotiable if you agree to use the same group for debt placement and investment sales, but this depends on the group and their appetite for bundling services.

3. Co-GP Splits for Pre-Dev Costs:

   • Co-GP partners funding pre-development costs often expect a fair split of the GP promote. A common structure is splitting the GP promote x/y after a preferred return (pref) target is hit.
   • Pref rates can vary, but 8-12% is a typical range for preferred returns in these structures. After the pref is met, the remaining promote is split, often 70/30 or 60/40 in favor of the lead GP.

4. Additional Considerations:

   • Development fees for sponsors are typically around 3-4% of total project costs.
   • Asset management fees can range from 1-1.5% of equity.
   • Ensure that all terms, including pref hurdles and promote splits, are clearly outlined in the term sheet to avoid disputes later.

If you're targeting sites with a +7% UROC, you're already in a competitive space, so structuring deals attractively for your partners while maintaining profitability will be key.

Sources: Do you think it's justifiable to ask for 25% of the GP for being the fund raiser for the projects?, Q&A:New Real Estate Development Shop, https://www.wallstreetoasis.com/forum/real-estate/gplp-structure-friends-and-family-capital-jv-structure?customgpt=1, How do all the smaller GPs handle the funding to closing process?, Q&A:New Real Estate Development Shop