Hello Monkeys - I'm with a good sized family office RE Development firm ($500m AUM) that has traditionally syndicated all of its money from friends & fam or internally. The deals were pretty straight forward (pref. return w/ % of residual cash flow). We're currently discussing partnering up w/ larger institutional money, but as most of you know that has its complexities relative to F&F.
Could anyone shed some light on what some important negotiating points there are when dealing w/ a developer/ (or from the perspective of a developer to 3rd party equity) with a more complex equity structure (waterfall, sponsor promotes, different claw back provisions etc.) ?
Also, as this is our first deal like this, could anyone help provide some development models for more complex equity structures (multiple equity & debt layers for ground up construction, etc. ).
Appreciate it Monkeys.
From my experience there is not some kind of cookie cutter structure you use on every deal. We have a certain return we need to get for our investors. Once we have a deal modeled up we understand if there is room to get the return necessary for our investors. If the deal is higher risk (poor credit tenant, tertiary market etc.) we set a higher pref before the promote kicks in to ensure if something goes wrong we still come out on top. On a no brainer deal in a CBD with a strong developer partner the pref is set much lower and the promote is likely more generous. Again, we still need to be able to hit our target return, but that can be done through a lot of different structures.
Cushman & Wakefield puts out a monthly Capital Markets Update that details deal terms on several recent transactions. These deals span across several markets, and show terms between JV partners for a variety of asset classes and strategies. The update spells out the asset type, type of financing, type of investor, target return, equity contribution levels for each party and the promote structure. It might be good to dive into the detail there to get a feel for what is market for different transactions. Obviously, if you have cheaper more flexible capital you will be in a better position to win deals.
This is helpful. Thank you
F&F? What do you mean?
Although you're dealing with institutions and more sophisticated investors, it really doesn't vary much for the normal pref and promote structure of PA's? Its all negotiated. You're not going to go into the meeting with a concrete term that they are going to agree to. You're going to go higher, they're going to go lower and then you're going to agree-- standard negotiation. The pref and the promote will still be the points of contention/negotiation. What type of deals are you working on?
picklemonkey I've seen these type of reports in Real Estate Alert but I've never seen C&W post these. I must be sleeping under a rock. I'll google it and look for it on their website. Do you mind posting a link to the collection of reports if you have a moment today/tomorrow in case I have trouble find it? Thanks.
*Friends and Family.
Our firm focuses on ground up garden multi & hospitality. The company has traditionally been a buy and hold, but has recently begun recapitalizing due to the valuation on our multifam. We operate predominately in tertiary & have seen larger pools of money flock into our markets unlike ever before as the yield hunt continues. Pretty easy time being an owner looking to sell.
"Also, as this is our first deal like this, could anyone help provide some development models for more complex equity structures (multiple equity & debt layers for ground up construction, etc. )." Nobody's just going to give you a development model with multiple layers like that. An example might be that the coinvest gets everything up to a 10% IRR, then 80% of everything between a 10 and 15 IRR, then 75% of everything b/t a 15 and 20 IRR, then 40% of everything after that.
As far as layers of debt, you might have a construction loan for 65% of the stack at a floating rate of 2-point-something percent and a mezz loan for some portion above the 65 that would be more expensive.
@cre123"
http://www.cushmanwakefield.com/~/media/reports/corporate/Global%20Repo…
The above is the link for the most recent report. I usually just google for them once a month when they come out. I actually don't know how to navigate to them through C&W's website.
picklemonkey thanks for the link, I've never seen these either and this is great info.
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