Multi unit development in LA
Currently looking at investing in a new multi unit residential development in LA - North Hollywood area. 

Land is for sale and total project cost is around 2.0 for 6 units or 2.4 for 9 units. Cap rate of around 6.75%. Total cash required around 500k. 

How much percentage equity should the developer keep if they are going to build and manage the property and put up 50% of the cash. 

First time RE investor and not sure how equity splits work!
[{"id": "fr2akq6", "text": "I don\u2019t know all the details and I\u2019m sure every deal has nuances, but I think the developer would normally collect a developer fee for construction, and a management fee for ongoing operations. The equity in (ownership of) the project (LLC) would be split up among investors based on their cash in the deal. Maybe the developer would have some earned equity? Maybe I\u2019m wrong? I\u2019d be curious to see other replies to this.", "replies": [{"id": "fr3pgmg", "text": "Thank you for your feedback! Your explanation makes sense. Do you happen to know the average developer fee? \n\nMaybe I can ask him to estimate developer fee and add that into total project cost or total investment required to determine divided equity? Would that make sense?", "replies": [{"id": "fr3su8g", "text": "As an investor you should ask to see a detailed pro forma. I\u2019d want to see sources and uses of funds (the uses is where developer fee would show up) for development. How are they arriving at development costs? Show me all of your assumptions. And then show me an operating cash flow. What are the operating revenues and assumptions? What are the operating costs and assumptions (this is where a management fee would show up)? Also who is running the LLC, and what kind of security do you have as an investor?\n\nEdit: missed the question about average developer fee... The answer is that it would likely vary based on the scale and type of project.", "replies": [], "depth": 3}, {"id": "fr4hr5e", "text": "5-7% on the budget", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fr3pveg", "text": "Equity split should be according to equity contributed, flat out, no questions asked. If the developer commits 50% they should keep 50%.\n\nDevelopment fees are separate, they are supervisory fees paid to the developer for the time and effort of managing the project and should have no impact on equity (other than to determine what the total equity contribution requirement will be - it is a part of total project cost).\n\nOften a developer will then offer to sell a portion or all of their share towards the end of the development.\n\nWhat you should be negotiating on is the distribution structure if the developer is planning to retain equity. For starters, when does their promote kick in? What is the exit strategy? And on and on.", "replies": [], "depth": 1}, {"id": "fr4d3p1", "text": "Many developers will take a portion of equity over top their cash basis after investors are paid out their preferred return...just for putting the deal together. I\u2019ve seen this as high as 40% + asset management fees on top of that....Not uncommon at all. All depends on the preferred return and ensuring that investors are still being fairly compensated for their risk.", "replies": [], "depth": 1}, {"id": "fr6ndfo", "text": "In development our firm typically puts up 10% with a passive investor putting up 90%. If you put up 50% of the capital and did all of the work, you should receive more than the other 50% - but only if the deal performs well. So typically you guarantee a return to your other partner and get a disproportionately large return. For example, promise them 10% a year but get 50% of profits above a 10% return to them since you are pari passu on capital but you are doing all the work. \n\nBy the way, construction loans are difficult right now and most local banks have shut down construction lending unless with prior relationships. Do you have a balance sheet? A lender interested in construction?\n\nEdit: if you put up only 10%, think about how many more deals you could do with your $500,000...", "replies": [], "depth": 1}, {"id": "iuykbjd", "text": "I am a commercial real estate broker here in LA/OC. Feel free to PM me. I can offer you free valuations.", "replies": [], "depth": 1}]