How to negotiate equity with a business partner with limited liquidity?
I'm working with my future brother in law to close an off-market deal for a commercial property (office building) and am struggling on the best way to divide equity. For context, we’re trying to transition from residential to commercial properties and we’ve found what appears to be a solid property. However, due to over leveraging, he doesn’t have the capital to go in 50/50 with me on this property. In a recent conversation, he casually mentioned he thought I’d essentially front the entire acquisition cost (down payment, inspection, etc.) and then he’d pay me back until we established a 50/50 equity split. He’s not a licensed agent, but is acting as the agent (e.g. brought me the property, primary POC with the seller on terms, lease, potential financing, etc.). For obvious reasons, don't want to sour this relationship, but this seems like unnecessary risk on my end with none on his. After some research, these are the main options I can think of:

1). Pay him a fee comparable to what I'd pay a CRE agent for sourcing/working the deal and maintain 100% equity. I think this would be ideal for me, but don’t think he’d be keen on this as he seems set on trying to get some equity. This may also put him off on partnering on future deals

2). Front the initial investment and have him pay me back. This doesn’t benefit me as I’m taking on unnecessary risk for little upside

3). Front the initial investment, but have clauses within the agreement that make it more equitable (e.g. he is also a guarantor on the loan, he only receives a percentage of profits that match his vested equity, paying premium for equity, etc.). It would follow something similar to a “profits interest” approach

Option#3 seems the best as it minimizes my exposure, includes him in the equity sharing, and allows for the possibility of partnering on future deals. I’m trying to toe the line between making sure I’m fully covered from a risk/reward standpoint without inundating everyone involved with complicated terms. Has anyone else been in a similar situation negotiating equity with a business partner with limited liquidity? If so, what approach did you take and how did it turn out? Thanks in advance!
[{"id": "gwtwpg7", "text": "Re: #2 and #3, one option is to structure your deal such that the equity you are fronting is treated as a loan (or preferred equity) accruing interest at X% and repayment of the loan (or preferred equity) comes first in the waterfall.  \n\nYou get compensated for fronting the cash and he doesn\u2019t have to come out of pocket.", "replies": [{"id": "gwu2x23", "text": "This is a solid plan", "replies": [], "depth": 2}, {"id": "gwuyodk", "text": "This. Your future BIL is the syndicator and you are the investor. You get a pref and your money back before he participates. Pretty standard arrangement.", "replies": [], "depth": 2}], "depth": 1}, {"id": "gwtzyku", "text": "Profits interest approach: you get half the profits and then you get his half of the profits until his half of the profits equals the acquisition cost you fronted. So the total profits have to be double the acquisition cost before he sees any of it.", "replies": [], "depth": 1}, {"id": "gwu6fi3", "text": "Treat your investment as preferred stock as mentioned by u/dudebrochill69 above (as a shareholders loan or preferred shares.\n\nCalculate the value of the brokerage fee, give that to him as preferred equity also. Both get paid interest.\n\nThe remainder you can split as partners, and the value starts out at $0, ie, all the value of the property is in the mortgage and preferred shares. You split the voting shares\n\nWith the above you are both compensated for what you brought to the table, and you manage it together.", "replies": [], "depth": 1}, {"id": "gwv6zb3", "text": "I\u2019d pay his \u201cfee\u201d in whatever equity portion you feel is fair. You brought the cash so you own the rest of the equity. You can then structure an arrangement on how much he\u2019ll pay by when in order to buy his portion of the equity. He doesn\u2019t buy it you keep it all. He does find the money he gets what he wants and you honor a deal you felt was fair upfront", "replies": [], "depth": 1}, {"id": "gy62spz", "text": "Thanks for all the comments here. Based on everything, it seems that option #3 makes the most sense. \n\nIs there a general rule of thumb on how to calculate what the interest % should be? i e. Should I be pegging this to current commercial or residential rates and what's the best way to calculate any risk premium to layer on top of that?", "replies": [], "depth": 1}]