How Much is Equity Worth?

Say you have development experience and want to go out on your own. You have the ability to source deals, navigate entitlements, get the development built, and get it leased. But you don't have capital.

Say you have a friend who has a network of HNW people that he can raise the capital from. To make things more specific, say your total development cost is $20M, you need $3M of equity, and your friend can raise it from 12 individuals who put in $250K each. He would probably also need to sell one of them on providing a completion guarantee in exchange for additional upside.

How much/in what manner would your friend need to be compensated for this? I could imagine him taking a fee out of the total development cost and not being part of the deal, or (more likely) being a partner and maintaining a figurehead role with the investors without being super involved on a day-to-day basis.

Comments (12)

  • Analyst 1 in RE - Comm
2mo

In my opinion, equity is your lifeline here. I would compensate this person handsomely (above what you deem to be fair) and use this as an opportunity to grow the relationship.

2mo
FreelancerCRE, what's your opinion? Comment below:

Equity broker fees are like 3-5% today, if that helps 

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  • Analyst 1 in RE - Comm
2mo

I will say 85% LTC isn't market for what I'm seeing. We are seeing in class A MF developments 55%-65% LTC (excluding debt funds who can get up too 70ish %).

I apologize if you already knew this and were just throwing out the $3 MM for simplicity.

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  • Analyst 1 in RE - Comm
2mo

Awesome! I figured you were aware, but just wanted to throw that out there since the debt market is pretty crazy right now!

As far as raising equity, I'd say most Brokers are 3-5% range. I'm seeing JLL at 0.75-1.5% for equity $50MM-400+MM or flat fees of $150M-250M of that size. I think the above case of flat fee $150M for equity is favorable to you and him. You can write it into the project cost and have it funded that way.

Also, as you probably know and already did. Don't forget to add development fee into the project budget, you need to pay yourself for your work.

Look forward to seeing your success on this deal!

Cheers!

2mo
PEarbitrage, what's your opinion? Comment below:

That kind of LTC to me indicates that there is a ground ivnestment in leiu of PIC.  

As for what the compensation for equity raise is as others have stated 3 - 5%.  But that number is 0 if he doesn't have a securities license.  You need to set up the securities documents first.  

1mo
Ozymandia, what's your opinion? Comment below:

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