I'm a little confused over how the finance community defines "developer fees" when financing a deal. I would appreciate the financing community responding.
I found an old thread on this forum from 2014 on "developer fees" could go as high as 9%, but there seemed to be a consensus that developer fees are in the 4% range, and should be tied to project completion, e.g. 25% at the financing, 50% during the construction and 25% at completion.
My firm is involved in an $30 MM historic renovation in Iowa, plus a non-historic addition that will be $15 MM, so the project will be $45 MM in total $. Now a little patience please on this next item. My firm is identifying the opportunity, developing the concept, doing the upfront architecture, arranging hotel flag and approval, getting state/city/federal approvals, doing the project management that interfaces to the city/state/community groups throughout the project, applying for all the financial credits, arranging the financing with the bank/HUD, selling the credits, signing as responsible for the project bank debt, will act as general contractor, and, at completion will own (along with bank debt) and manage the property. We're taking an abandoned historical building in an urban renewal district and breathing it back to life as market rate apartments as part of a neighborhood gentrification / revitalization effort. We take the risk of all upfront costs, and then do a developer fee payment of fees at 25% at financing, 50% during construction, and 25% at completion, and will consider deferring schemes if necessary. However, we plug in 10% - 12% for the the overall project, or 15% of renovation costs (after acquisition), as the "developer fees".
I believe my concept of a "developer" and "developer fees" is a little more extensive than normal, and would like to hear how the finance community would see this on a financing application or partnership agreement.
Many thanks. I look forward to responses.
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