Hi all,
I have been doing some consulting as a side hustle for a group of RE developers/investors. I've spent about 60 hours building out their model, a slide deck, and have helped them with several pitches to banks and investors. I'm not related to them and don't necessarily owe them any favors. What would be a fair amount to charge them? I was thinking a couple bp fee of the total project cost ($25MM).
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Sounds reasonable to me for the amount of hours put in. But how did you not agree to terms from the beginning???l
Lol I was going to say this
Next time:
1) Up front engagement agreement
2) On going monthly retainer + success fee that way if they don’t close it wasn’t for nothing
yeah negotiate that before...but a couple of bps on total project costs is insanely high. If a total market developer fee is 3-4% net of land I certainly don't think it would be fair to expect to get paid half of that...which is $500,000! Without knowing more about what specifically you did for them, based on your description I would say the going rate for that work is $30K tops.
I read it as points vs bps at first as well as it seemed weird to charge 2bps of total project cost (I.e .02%). But I think that’s what the OP means as $5,000 sounds a lot more reasonable than $500k for 60hrs worth of work.
If it were me I’d charge an hourly fee and try to negotiate some piece of the dev fee or the promote on top of that. If your work directly results in them securing capital then I think it’s fair to ask for some upside exposure.
Coming into this I didn't have any RE experience, but I know how things should flow through a model and know what investors and lenders look for in presentations and pitches. I'm only a year and a half out of undergrad as well. Both of us weren't really sure how much value I was going to provide initially and that's why it was not discussed upfront. I have found RE is fairly straight forward and if you don't know something there's a lot of resources online to figure things out.
Sorry about that, I should've clarified. I was thinking somewhere in the 2-5bps range.
They pretty much just gave me a list of assumptions and I built the model from scratch and made them a slide deck. The development fee is ~$375M and he is also receiving 5% in sweat equity. What hourly rate would you charge and what would you try to negotiate on top of that?
There's another group that is starting another development that has also asked for my help. They mentioned that the development would be in the $70-80MM range. Comp will likely be discussed upfront on this one and so I'm trying to figure out the best way to go about this.
What you're doing is probably worth about $100-$150 per hour. what sucks for you is that once you build out their model and pitch deck they property won't need you on future deals, so you're essentially a one and done service provider. Now if you're actually helping them source their debt that's a different story and probably worth 25-50 bps of the loan amount. if you can pivot your services into a debt brokerage shop with a good list of clients then you're gold.
It really just comes down to how much you value your time. I worked at a firm that did some consulting/advisory work where we charged a monthly retainer that was deductible towards a success fee. We also did the same with an hourly rate. So if our retainer was $5,000/ month our hourly rate was $300/hr and we put in 20hrs that month we’d earn an additional $1,000. Given that you have relatively little RE experience and are less than 2 years post-grad I’d say somewhere in the $100/hr range would seem fair. That’s significantly cheaper than what they’d be charged if they went to an established shop to do the same work.
Just out of curiosity what’s the track record of the developer? Seems odd that they’d look to someone with no RE background to build out their model and help pitch to capital. Is he/she putting up any cash or are they just getting the sweat equity? I’d have some concern asking for any sort of success fee or piece of the pie if the developer themselves has little track record and also no real skin in the game and in that case I’d be more aggressive on my hourly fee structure.
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