Multifamily Development vs Acquisition Fees
I’m on the multi family development side and curious how fees on the acquisitions side work. What are the typical fees for acquiring a deal and what do you get paid for throughout the hold period through disposition. I was looking on costar in my market at the amount of multifamily deals built since 2010 and relative to how many acquisitions there have been I’m curious which is a more efficient business model in respects to just generating fees.
Hi Prospect in RE - Comm, the silence is deafening, sorry about that.... Any of the threads below helpful?
More suggestions...
If those topics were completely useless, don't blame me, blame my programmers...
We don't pay acquisition fees as an L, but 50 bps seems market for large institutional deals. I used to work for a JV with a large pension fund on the sponsor side and the acquisition fee was capped at $200k.
Development is much more of a fee generator but requires substantially more overhead.
$200K? Why would any GP work with you?
We were the GP at the time (old job) when it was capped. It was still very lucrative because the management fee was 4% and all leasing and legal was in-house. The promote was also very generous.
We are a sponsor, all of our deals are 1% acq fee, 4-5% development fee net of land and the fee, 1% dispo fee split 50-50 with LP.
Yes but you are doing ground up, right?
What do you all say to justify the disposition fee when a broker (I assume) is being hired to handle the disposition?
Preparing the deal for dispo and running the diligence surrounding that can be a time suck even when a broker is involved.
usually 25-50 bps, sometimes higher if the firm is trying to make it into a profit center rather than just cover costs... other fees come from ongoing asset management fees and promote.
I have seen acquisition fees range from 25bps to 1% of the total capitalization of the entire deal
I bought about 10,000 units and we typically charged 1% acq fee, 1% asset management fee on EGI, and we rarely got a dispo fee since we got a promote.
probably a dumb question - where exactly does the acquisition fee come from? If you go out and buy a $50m multifamily asset, and there's a 1% acquisition fee, who is actually paying you that acquisition fee? Your LP/investors?
The acquisition fee could be funded pro-rata between the equity partners and the lender at closing.
Assume equity is split 90/10, technically 90% of the acq fee is coming from LP investors and you are paying 10% of the fee to yourself. It's a deal cost and hurts the overall returns of the deal but it's standard to motivate shops to buy deals. It's not that easy to land, capitalize, and close a deal successfully!
1% of purchase price acquisition fee .5% of sale price dispo fee 1% of purchase price annual asset management fee 2%-4% of EGI annual property management fee if we manage the property internally
If you are charging 1% of PP as an annual asset fee you are getting way above market. Usually it's 1% of EGI, same as property management fees. If you buy a $40m deal you get $400k/yr in asset management fees? That's bananas and would crush returns.
I’m on the LP side and we typically only pay sponsors an acq fee if it isn’t a marketed deal and we never pay dispo/AM fees (with a one or two exceptions)
Jesus, are you one of the mfs that can dictate terms or do you play in a niche part of the market or what? Groups still have overhead
We’re a MF that invests globally in all product types. I wouldn’t say the JV partners are starving for cash to pay overhead that we work with. We tend to have fairly programmatic JVs with some of the bigger players like hines/lpc/greystar where the JV terms were agreed to long before a specific deal comes up. Also, in the cases we work with a smaller sponsor, the absence of acq/am/dispo fees can be made up for with a property management contract and/or lease override fees (on the office / industrial side).
I imagine they are only investing with established groups that have a substantial enough portfolio so as to not require fees to keep the lights on.
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