I currently work at a boutique RE investment/development firm specifically focused in Souther California. When I say boutique I mean very boutique. Besides our back of the house operations (accountants, property managers, etc.) it is the principal of the company and myself doing all the deals. The firm is a family company and most of our capital stems from family funds. We typically do deals in the $5-$10mm range, but we're very high volume. For reference, i've only been here for about 4 months and I've sourced, negotiated, planned, strategized, and closed on 4 development deals with 2 more are on the way/in contract.
My role is quite unique in the sense that I've single handedly developed our commercial acquisitions strategy and I spearhead almost everything involved in the acquisition & pre-development process. When I say everything, I do mean EVERYTHING. Here's an example with a development deal in West Hollywood I've been working on:
- I sourced and then negotiated the full purchase of the property with the broker and set the terms and conditions for our purchase. Everything below happened within the 21 day due diligence period...
- The deal was for a duplex with a single occupied unit. Post opening escrow I spent the next two weeks negotiating a cash for keys agreement with the current tenant including dealing with the RSO folks in WeHo and making sure I wrote up a proper and bullet proof contract for vacancy agreement.
- All and any development feasibility analysis runs through me. One of my biggest sources of value is my land use expertise, and in the open marketplace I know for a fact I could charge up to $300 an hour for my experience, which I did before I got this gig. For this particular property I knew exactly what we could build on the lot from day one, but I still took the liberty of visiting the WeHo planning commission, double checking our due diligence procedures, and confirming land use feasibility for this hypothetical project.
- We have a development manager once things start to run themselves, but until a deal reaches that stage I handle all of the preliminary consultant sourcing which in and of itself requires a good deal of effort and research. I had to find an architect that knows development from front to back in WeHo, as well as the proper consultants (engineers, soils, survey, etc etc) in order to put together all the pieces before I hand the project over to our dev manager.
- Finally, I also took the liberty of finding out who the neighbors are, what their financial situation is, and how we can best make offers to them as well. At the moment, I'm close to securing deals with BOTH adjacent neighbors and turning this 10 unit development into a 30+ unit deal with the increased lot area.
The above processes are the norm for every single deal I've sourced so far. Last thing to note, is that before I joined, the firm didn't even really do development deals. They've traditionally focused on single family flips, believe it or not, and they had maybe 1 or 2 multi-family development projects a year. I've practically started a new investment division.
I'm in quite a unique situation, and the way I've been looking at it, is that I've essentially started, and am running my own shop, albeit within their team and utilizing their capital and talent pool, but otherwise leading my own ship.
That said, I'm really not sure what's appropriate to ask for in term of equity? I'm currently thinking around 20% with 3 years of vesting, as quite frankly I feel that's very fair for everything I just explained above and truly, if I packed up and left tomorrow they would be kinda fucked and lost in the woods on everything I've so far gotten them into.
I'm currently being paid a quite modest employee salary.
Thoughts?
Sounds really cool. Before I give my $0.02, how much total experience are you talking about and what's your current life situation? I.e., are you 28 with no kids, 35 with a family and mortgage, etc. Unfortunately I think this will factor into how much you can realistically push for even though it shouldn't matter given your solid experience.
Sweet role. Is your DM an outside consultant? If so, how / what do you pay him? i.e. through the DM Fee 1-3%? or just hourly rate/monthly rate?
Yeah, it really is a dream job to be quite honest, which is why I initially accepted at such a modest salary, among other reasons. The DM is actually one of the sons here. When I say family company, I really meant it. The firm is run by a husband and wife, who have 5 sons. 3 of the sons work in the office with us. The eldest, at 32 years of age, is the DM. All of the sons have equity stake, per being a part of the family obviously.
MonkeyWrench I'm only 27 myself, have a fiance but no kids and no mortgage and i'm 100% debt free. I have about 4 years of very solid real estate development experience which probably seems low, but I've had a very scrappy career which has lead me to this point. During those 4 years I was working for very big time independent developers and I learned A TON through first hand experience. I essentially got mentored by the "Donald Sterling" types, who only invest locally and who would rather make a deal on the back of a napkin with a few quick calculations than bother looking at a DCF. (fun fact: my previous employer actually sued the crap out of Donald Sterling over a deal made on the back of a napkin and won, I shit you not.)
So anyway, as I had mentioned, the family's bread and butter for the past 30 some years has been flipping homes in LA and they do a DAMN good job with it. That side of the firm currently has about 30 projects pending, and the margins are ridiculously high. When they brought me on, they told me they wanted to transition their capital into more long term cash flow oriented deals to compliment the flipping side of our business. Little did I know I was going to be given unilateral authority to essentially what has amounted to starting and running my own development fund.
That said, this brings me back to my dilemma. While it's been an awesome ride so far, and I'm loving every minute of it, I've been working insane hours, dealing with ridiculous amounts of stress, and pretty much operating at a partner level and treating every deal like it's my own money! This past week I came to the realization that I either need to tone it down, and start acting more like an "employee" (which I really do not want to do) or more ideally, negotiating an equity stake so that everything I'm working for is incentivized and my long term vision and goals for our development fund is aligned with my own career interests, since realistically, I could be doing this by myself in about two to three years.
Got it. Congratulations on the opportunity, sounds like a gem especially early stage in your career. I'd say your most savvy 'ask' would be a small acquisition fee (% based) on each deal you acquire to compensate you that way. Then on top of that, you should ask for the ability to participate in the deal OR get carried (sweat) equity. If you go the participation route, you'll probably be able to get better return potential since they'll think more favorably on it / give up more if they perceive you have more skin in the game. The carry play is obviously less attractive to them since the risk is all on their part, so they'd probably keep more of the upside themselves as a result.
You could also do some type of internal waterfall where you get promote based on performance metrics. All of these combo structures would let you forego the salary after a short while which is better for both you and the family.
If you want to take a look at this stuff in greater detail PM me and I can share some structure ideas I've seen in comparable situations.
As a sidebar, keep in touch, would be great to grab coffee/lunch sometime since I'm in the same geographic area. Might be some opportunity for us to work together in future.
You need to let these people know where your loyalty is...and that is to them and their family. Inform them that you want to be rewarded for your successes but at no cost to the family. In return you should ask for their loyalty because you're not going anywhere and want to make this place your last stop (almost like you're family).
When they ask what you're looking for try not to negotiate against yourself. Let them give you an offer first.
Do not do the "take away" with a shop like this. You will get nowhere sharing other offers you have with this family. They really don't care.
This is a sweet gig with some equity upside. Don't go all in today. Maybe tomorrow, but not today.
Sounds like an incredible role - congrats.
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