This is going to be hard to verbalize, but see if you can follow me.
If total equity needed for a deal is $100 million and the LP provides $80 million, but $2 million of that goes to the GP through an Acquisition fee that they then roll into the deal how does this waterfall work.
Does the LP accrue on $80 million or $78 million? does the GP accrue on $20 million or $22 million?
Does each party accrued on the dollars they put into the deal, but the percentage of distributions are shifted? etc?
This is hard to verbalize but hopefully someone follows
Pretty sure I follow. It depends on the deal / structure of the deal and JV Agreement, but typically the Acq. Fee is charged at the deal level not the LP. So technically the LP is paying 80% of the Acq. Fee and GP is paying 20%. The GP can use that Acq. Fee to offset their equity investment or pay their guys or whatever the GP wants. But for purposes of %s GP equity is still 20M. The deal remains 80-20 for purposes of pro-rata.
This guy is right. An acq fee is usually a deal cost, meaning it is part of the unlevered project level cash flow (before you think about debt or equity %). So lender pays LTV % of it, LP pays (1-LTV)*80% and GP pays the rest. Now it’s always negotiable tho too - some lenders might say they aren’t paying it so you end up just paying out of equity. So something you’ll need to talk about.
also, the wrinkle in your situation seems to be on the point of the GP rolling it into the deal. That will have to be an explicit decision between the partners - do you (LP) want this to be an 80/20 deal or a 78/22 deal? That fee is just cash to them so they can either invest more into the deal (while you the LP invest the same amount less because this doesn’t change overall deal costs) or they still only invest 20 and pay their guys / investors the fee cash they just collected.
You'll typically see these GP fees (acq fees, CM fees, PM fees, AM fees, Dispo fees) baked in at the partnership level pre promote. As was mentioned, really depends on the JVA.
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