Developer fee for turnkey multifamily?
[deleted]
[{"id": "eggtrt4", "text": "If they control the land but are relying on you to complete the steps to acquire it, I would think a 1-2% fee of land price for acquisition would be appropriate (outside of brokerage fees). 3-5% developer fee is reasonable. If you are providing CM services as part of that, a 1-3% CM fee might be reasonable. I have also done deals with an incentive fee of 50% of the amount of the contingency saved (not including owner-directed changes to scope). ", "replies": [{"id": "eggun78", "text": "Thanks. They actually own it, so I'd just be doing predev, construction and lease up. I'd bring in a third party CM as that's not my area of expertise. ", "replies": [], "depth": 2}], "depth": 1}, {"id": "eggw587", "text": "How big is the project, that should help determine your development fee? I noticed you will be doing the lease up as well, in addition to the development fee you should charge an asset management fee.", "replies": [{"id": "eggxs4k", "text": "Probably $30M", "replies": [{"id": "egh23an", "text": "I would ask for 4% and be happy with 3%, but be sure to define development costs. Usually we charge the fee on hardcosts and not soft costs, but if you are managing the entire development I think you could make the case to charge on both.\n\nFor the asset management fee I would set a base monthly fee since it sounds like you would lease the property up and then be gone so having a percentage of gross income fee wouldn't make sense for you.", "replies": [{"id": "egh2do9", "text": "I typically charge a 3% fee on all costs other than acquisition, so seems reasonable enough. I won't actually be doing the lease up, just hiring their permanent management team and making sure they have the runway to get the property stabilized. I haven't charged an asset management fee to a deal for this in the past, but again I've never been a turnkey guy for residential. Is that typical to charge that to the deal? ", "replies": [{"id": "egh2oo2", "text": "I realize you won't be doing the lease up yourself, but you will still be managing the property manager and if you have ever done a lease up before you will know what a headache it can be. In my world AM fees are always a part of the deal.\n\nWhat exactly is it that you do?", "replies": [{"id": "egh3rxs", "text": "I've never charged an asset management fee for arranging the contract before\n\nI work for a RE fund, but also consult and develop on the side. This would be a side gig to start as we work through entitlements (if I get it), that would allow me to go full time, if everything falls into place (big if) . Previously worked on similar deals for a developer, so this is a nice bridge to go out on my own since I won't be betting the farm. ", "replies": [{"id": "egh422g", "text": "Maybe I am misunderstanding you then. Just arranging the contract, I wouldn't charge a fee. But if you are expected to arrange the contract and then manage the PM through the lease up then that is when I would charge the AM fee.\n\nWe have similar goals to go out on our own, how did you get involved in consulting and developing on the side. I am currently trying to figure out how to do the same.", "replies": [{"id": "egh5z6s", "text": "I wanted to do my own deals, but didn't want to have to live on the edge or be in a sink or swim scenario. I told my boss I was considering going out on my own, and they freaked out and gave me a ton of flexibility to stay and do smaller deals on the side that didn't interfere with with our Fund's business. \n\nWe aren't a huge fund, but I am in a spot where I am considered indispensable (at this point, our CEO does most of the raise, and I have the deal relationships) and am in a market where there is limited people with my skillset and expertise that could replace me.", "replies": [], "depth": 8}, {"id": "egha31z", "text": "Didn't fully answer your question, sorry Vaginacheese. The consulting work has mostly come about because our fund tends to act as an advocate/advisor along with making our investment. We do some higher risk, higher leverage stuff at times, and so we can be a bit of a value add to bring on (structuring the other financing) which has helped with deal flow. Clients that didn't need our cash on other projects still wanted our services, so we have taken that on when there is slow deal flow, and that reputation has spilled over to me getting personal offers to consult.", "replies": [], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "egh37x7", "text": "Whatever you do, set aside $30-50k as a legal contingency.  This is how much a reputable lawyer will charge you as a retainer in case you guys sue each other.  You don\u2019t want to be in a position where two years from now the market turns, you lose your shirt in other deals, and now suddenly these guys start acting badly.\n\nFirst time player, family office, $30m deal size, these aren\u2019t red flags, but definitely increase the probability of misunderstandings, miscommunications, misaligned incentives, and poorly structured contracts that can escalate to a lawsuit.\n\nPut the money in a separate bank account and you don\u2019t touch it until two years after the project is completed. ", "replies": [{"id": "egh4c3x", "text": "I was basically considering the payment at closing to be my \"shit hitting the fan\" capital - so, this is great advice and I totally agree. My attorney is really way outta my league, so my typical operating/partnership/development agreements are pretty overkill, but they pretty much advise me to do this with every deal i've ever done with others.", "replies": [], "depth": 2}], "depth": 1}, {"id": "eghfare", "text": "you could ask for a \"synthetic promote\" on the back-end, where they pay you a fee or a portion of proceeds after they hit a certain hurdle. Some partners would give this, some won't. Depends on how much leverage you have. ", "replies": [{"id": "eghgbqh", "text": "They aren't sophisticated enough for this most likely. They are not real estate savvy, but the family wants real estate, and wants to DIY it. There are a lot of people they could work with on this but I have a personal relationship with them and they felt I am a good option, so I am trying to find the balance of being reasonable on fee and not killing myself for scraps.", "replies": [], "depth": 2}], "depth": 1}]