Where do you see real estate developer fees at these days? I've been underwriting deals based on 4% of Hard Cost+Soft Cost.
Should there be an acquisition fee on top of this for the developer for "putting the deal together"?
Typical Development Fee
So what does the typical development look like? This user outlines how he asses fees on ongoing deals.
from certified user @DB73
From a lender's standpoint, I typically want to see Developer's Fees around 3% of total project costs (land, hard and soft), no more than 3.5%. Sometimes I see an acquisition fee, but not always. My scrutiny on fees increases when the developer is also acting as their own general contractor.
I want to see the proper alignment of interests between the developer, their equity partner and me (as lender) - that can get somewhat skewed when the developer is also the GC and is earning a development fee, GC fee, acquisition fee (and maybe even a construction management fee).
I have to ask myself, at the margin, does this developer care about the ultimate success of the project or is it just about the fees. Another good control to have in the deal is structuring when exactly the developer earns the fee. I want to see as much of the fee back loaded as possible (keeping the developer as focused on the final success of the deal), but the developer of course wants as much front loaded as possible.
In general I try to target 25% of the fee (or less) recognized at loan closing, 50% paid pro rata with hard cost draws, and 25% at certificate of occupancy (I try to push to stabilization if I can instead of C of O).
Private Equity Interview Course
- 2,447 questions across 203 private equity funds. Crowdsourced from over 500,000 mem.
- 9 Detailed LBO Modeling Tests and 15+ hours of video solutions.
- Trusted by over 1,000 aspiring private equity professionals just like you.