Developer fees on mid-sized residential project
BP folks,
I am working to put together the following project and would sincerely appreciate any guidance on developer compensation.
The project is the new construction of a 100-130 unit residential apartment building in the $20-30M total project cost range. The unique situation is that what would normally be the equity investment funds are coming in the form of a loan structure from a non-profit fund because it will be used for a certain type of affordable housing. Due to this, there will be essentially no free cash flow after bank debt payments and the return paid to the non-profit fund.
The developer will own the property, so that will in the very long-term be a valuable asset. But in the short and medium term, the developer's compensation will be entirely in the form of the developer fee (no meaningful cash flow from equity or profit-share).
What do you think a reasonable developer percentage fee is in this situation? (structured, of course, with at least half of said fee coming at full occupancy and potentially being at-risk for cost overruns).