Had a friend approach me with an opportunity to invest in a restaurant but I'm conflicted about the terms
High level terms:
- GP Equity 12% of total equity
- LP Equity: 78% of total equity
- The GP gets 10% of Cash flow until LPs achieve a 1.4x equity multiple (return of principal + 40%).
- Afterwards, the GP (12% of equity) gets 70% of cash flow and the LP (78% of equity) gets 30% of cash flow.
Is this normal for the restaurant JV? A 70% promote after a 1.4x equity multiple seems extremely high to me. Especially considering there is no- restaurant owner still gets to keep 70% of the equity even if it takes 4 years to get to a 1.4x return.
Also, the operator owns one other restaurant. This is not a national chain or an operator with 10+ restaurants or something