Modeling Asset Mngmt Fee

Recently was presented a case study that stated "GP charges an asset management fee" (you're put into the position of an LP). How do you go about modeling asset management fee. I deducted 2% of gross exit value. In my review, I believe asset management fee is an annual (if not quarterly) expense and therefore should be deducted on an annual basis? If this thinking is sound, a) what is a reasonable asset management fee % assumption, b) what is it calculated on (CF from Operations or CF after Financing), and c) what section of DCF should it be included in (after NOI and before CFFO? Similar to TI/LC/Cap reserve etc.)


Thank you!

 
Most Helpful

(A) Hard to give you a "reasonable" fee without some context but I can tell you that we take a 3% Asset Management Fee and (B) the fee is calculated on Total Income (EGI). Most property management companies charge a similar fee structure to the extent that the fee is calculated on Total Income (or Gross Receipts). I've never seen this type of fee calculated on a cash flow metric like Operating Cash Flow or Cash Flow After Financing. While a property management fee is treated as an Operating Expense, (C) the Asset Management Fee is treated as a Non-Operating Expense (just like Partnership Expenses and Capital Expenditures) and is therefore included in your Operating Cash Flow -- in other words, an Asset Management Fees comes after Net Operating Income.

Hope this helps!

 

AM Fees come in two different flavors for the most part: AM fees on a fund and AM fees on a deal that is funded as a one off/programmatic JV.

For firm with a fund, the AM fee is generally a percentage of equity (generally <~1% but I've seen 2%, either way it's highly negotiable).

AM fees for firms that do deals asset by asset are typically paid monthly. The amount can vary widely depending on the rest of the structure, if you got an acq fee, charge a CM fee, financing fees, etc. it's going to be different than if you don't have one or more of those. I typically see it at 1% of EGI in conjunction with other fees.

 

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