What actually gets paid out on LP equity?
Say you have a project where you need 1.5m in engineering/entitling and attorney fees. The purchase price is 10m w 15% refundable EM, but you can structure the contract to not close until entitlement and have an assignment clause for the buyer in tow so the purchase price never really comes out. Say your pref is 20% then a 50/50 split. How are you calculating that? All equity actually spent plus 20% even if the EM is returned upon the sale? Or would you not take into account the EM? (Just an entitled land sale)
What if you actually went in and developed it and put 15 million into the property and got financing on the PP and Dev Cost but had a reimbursement agreement with the city for 30% of improvement appraisal? How do you take the reimbursement in to account on that split?
All money going into the project accrues a pref. Even if it comes back to you. I would run a waterfall with all money spent accruing the pref. Then at sale / close it comes back.
Damn. I was thinking the reimbursed amount could be considered outside of the pref. That shoots me in the negative if I have to give 20% back on that as well.
Trying to do a side project to finally get out of this rat race bullshit. Maybe I’ll just say no pref on that specific portion. Everything can be negoshed. Ever seen people giving parameters around equity that is eligible for pref?
If the return is good enough you can structure it however you want.
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