We have a potential opportunity to grow a small portfolio ($5M-$10M equity in) with a PE partner in 100-150 unit MF seeking 5%-6% preferred. We will be looking at 65%-75% LTV deals.
We are familiar with a multitude of structures but are interested in what you're seeing as far as overall equity splits in MF.
Equity splits and respective promotes can be relatively variable and depend on a multitude of factors including the Sponsor's reputation/experience, ability to execute (not just the value add but closing the transaction), if they are guaranteeing the loan, etc.
My firm previously operated as an LP which placed approximately $100MM annually in joint venture projects. Typical equity splits we saw going in was 90-10% (between LP and GP, respectively). Not uncommon to see a preferred return of 7-8% on each member's equity if Sponsor can perform well.
On the back end deals are typically structured with a waterfall like the following:
20% IRR: 85-15% split between LP and GP (5% promote for GP)
25% IRR: 80-20% split between LP and GP (10% promote for GP)
30%+ IRR: 75-25% split between LP and GP (15% promote for GP)
The waterfall situation is not ideal for a Sponsor in that it is pretty rare to even hit the second hurdle. If you can negotiate a preferred return on your capital that will help your returns and lower your downside.
your sponsors were shafted - holy fuck, that's EM level pref.
Our bread and butter is 25/75 - 16,18,20,22 @ 20,30,40,50% promots
Just to make sure we're on the same page - you mean 25% PE/LP and 75% Sponsor/GP?
I appreciate the input!
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