Prop mgmt Pass through Costs
In JV agreements, is it typical/customary for the owner/JV entity to pay mgmt costs of the property AND pass through costs of the prop mgmt company? I.e 2.5%mgmt base fee + allocation for mgmt companies business licenses, training costs, etc…?
It seems like costs attributable to the property are reasonable (I.e software licenses for prop mgmt), but pass through that entail what would typically be the overhead costs of the prop mgmt company seems egregious (such as allocations of bonus/benefits to employees, training costs, etc).
Not in a JV, but recent property management proposals I've reviewed for larger firms it has become pretty common in the multifamily world. I fight it where I can, but it seems to be market at the moment. For smaller/regional operators this is less common, though they are moving that direction too.
prop mngt is usually/supposed to be "above the line" (of NOI), so the "property" pays for it before JV distributions. So this should be an issue between property/deal (i.e. asset mgnt) and property mgnt (even if in-house by operator). Not sure how this always gets negotiated but "cost plus" is common, meaning all direct costs (like all the items you list that apply to the specific property) plus some percentage of collected revenue (for PM overhead and profit) are charged to the deal/property.
Can these be "egregious", sure.... it's the job of asset mngt to keep these reasonable and in-line with market. But yes, "bonuses" based on agreed upon performance metrics are a cost to the property and thus the JV/owners (at least as far as I've seen).
Does anyone ever see, in a JV, the GP try to pass an asset manager’s salary (or a portion of it) back through the property? Whether via the management fee (assuming the PM is done in house at thr GP) or through G&A or another line item? Do any firms pass asset manager salaries back through the property so that the asset management fee is just profit?
Never seen this before. If I saw this I would fight like hell to get it changed.
Not that uncommon, especially for non-managed sites.
2% third party management fee, 1% asset management fee. not the full salary, but a portion.
What is a non-managed site? And for fees, do you mean a 1% AM fee, 2% PM fee, plus additional reimbursements for a portion of an asset managers salary?
Non-managed as in a third party will managed the asset for you (i.e. Bozzuto, Greystar, Bainbridge). And on a JV, correct - 1% AM, 2% PM. There wouldn’t be any further pass through outside of those fees. 3% is high enough otherwise you will impact your valuation. Albeit another buyer won’t underwrite more than 3%.
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