Carry % as risk free master developer?
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[{"id": "g212yw4", "text": "I love creative deal structures. This specific situation isn't one I've seen first hand but your proposal passes the sniff test.", "replies": [{"id": "g2150hf", "text": "I specialize in the weird stuff, but haven't seen this structure yet either. Normally I'd just throw a fee at it but as I mentioned, I don't think that would leave the landowner comfortable.", "replies": [], "depth": 2}], "depth": 1}, {"id": "g2143yp", "text": "Couple ways to think about it....\n1.  2-3% acquisition fee that you can roll in to the GP.\n2. Or ask for a piece of the GP\u2019s promoted interest (10-20%)", "replies": [{"id": "g215731", "text": "I'm doing more than 2-3% though, I'd be putting the deal together and running QB. Land is likely worth about $4mm, if that matters.", "replies": [{"id": "g219jto", "text": "Why don't you think of a $ amount you think is fair and ask for it? Or finagle the %s to equal the amount you want?", "replies": [{"id": "g21f9ma", "text": "To me, If I pull this off, it's worth 300k upfront, but co tributes as equity, I'd want 2%. Since I don't think I can get the fee and still unlock the deal, the 2%, without giving up a pref to the risk taking developer. Would be appropriate to ask for the same terms as the developer making the guarantee? \n\nI guess a 4 year project, so I'd want some upside.", "replies": [], "depth": 4}], "depth": 3}, {"id": "g21j8pw", "text": "I don\u2019t think a developer is going to cut you more than a broker fee and MAYBE a % of the promote. They are taking all of the risk here, not you.\n\nFor the larger deals we would sell, iirc 50-75bps was pretty standard commission on our larger deals like that.", "replies": [{"id": "g21mdk1", "text": "Thanks for the hard info. For that 50-75bps,you are referring to the exit price, rather than the acquisition of the land I assume?", "replies": [{"id": "g21mqpu", "text": "Yeah, sorry. You were talking about being paid at stabilization in year 4. Our projects would stabilized in year 10. LP and GP promotes paid during the holding period.", "replies": [{"id": "g21o04l", "text": "Got it, thanks. I think a ten year hold is unlikely based on the firms I am working with, they tend to flip the commercial once it's stabilized as it most likely will be grocery anchored. The residential they will likely just refi off any other partners with gse loans.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "g21mc8s", "text": "Bringing a land owner together with a buyer for development is really just acting a broker.  So, you\u2019re QB\u2019ing a brokerage transaction not taking the development risk.  \n\nI\u2019d personally ask for a large brokerage fee that can role into the deal as a GP piece (same terms as the GP) and then ask for a piece of the Developers Fee UF you\u2019re going to be adding value through the process.  That way you get some ordinary income and long term  upside through ownership of the asset. \n\nAlso, not sure if coordinating a $4m piece of land would equate to $300k up-front.  That would be a brokerage fee of 7.5%.", "replies": [{"id": "g21n12g", "text": "You're right in that it's risk free from my standpoint, aside from not actually getting paid until there's an exit with profit, and a lowered cost basis up front for the GP, which theoretically means higher IRR overall. \n\nThe land would also be contributed as equity, further juicing the deal as said above. So, getting $4m in equity, deferred brokerage fees, plus likely some capital markets work on my part, I feel like $300k is very reasonable no?", "replies": [], "depth": 4}], "depth": 3}, {"id": "g223qoq", "text": "Take an option on it and then make whatever you want to make.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "g21932s", "text": "I think the relevant question is where will the profit be coming from.\n\nAfter the developers finish, is the property going to be sold, leased, rented out? Etc.\n\nIf it's being sold, negotiate for a % of profit or sold price. If it's being leased/rented, do you want the rights to lease it? Or if outsourced, do you want a % of profits over time? Or would you prefer a buy out?", "replies": [{"id": "g219ll8", "text": "The money would come on the exit. I'm not in sales/leasing, so once it's stabilized, I'll be silent", "replies": [], "depth": 2}], "depth": 1}, {"id": "g21p4ll", "text": "Theoretically it should lead to a higher project IRR since they have to raise less equity but that assumes that the land is contributed at market rate. But the Developers IRR could be impacted based on the terms they give the land owner and relative to their cost of capital. But that\u2019s their problem to solve.  \n\nIt\u2019s tough for me to quantify your value contribution and trying to come up with the NPV of your value today is not really how they will think about it.  \n\nJust lay out all of the ways you\u2019d like to consider compensation and let them guide you on what they would like to offer and negotiate from there.  \n\n1.  Acq Fee\n2.  Dev Fee\n3.  Promoted Interest (you\u2019ll need to understand their typical GP/LP structure to figure out the value for you)", "replies": [{"id": "g21pt6f", "text": "The difficulty of valuing the NPV of this is exactly why I am here haha!\n\nA promote may be the best way to think about this.", "replies": [], "depth": 2}], "depth": 1}, {"id": "g22gcx4", "text": "50 to 70bps up front. More on the backend. The land owner should benefit for cost vs appraised on the land. Dev hould profit on execution/construction risk at exit. You're an inexperienced broker(sorry to be a dick) but you're partners shouldn't trust you. (edit, and if they do you should question their ability to execute and deliver back end profits unless they have a solid track record.) Which lenders will take land at cost vs those that will leverage at value in a post-covid environment. Will HVCRE come into play? Can you most effectively handle leverage placement?", "replies": [{"id": "g23r5rs", "text": "I'm not a broker, this is a side deal for me, so I'm definitely inexperienced on that side of things haha. I work for a small fund, and have a lot of experience in development, but none in brokerage. I've worked with the partners before, and while it's \"trust, but verify\" they have a track record and are prominent firms in my market.\n\nId assume we wouldn't land the financing to get into HVCRE loans, since some of this will be retail, but the retail developer has a good track record with a few REPE firms that would pribably take the whole deal on the construction. I'd probably arrange some property tax incentives for the deal and manage local approvals as I know the local officials.", "replies": [], "depth": 2}], "depth": 1}]