Cost Segregation Expert and Investor · Lakewood, NJ · Member since 2017 · 1k+ posts · 1k+ votes
Is there a standard fee or equity split structure for someone acting as a KP (Key Principle) /deal sponsor / loan-guarantor on a multi-family acquisition? Let's say all they do is co-sign the loan, without bringing any money or active experience in the management of the deal to the table.
The situation is a first time buyer, who has a 10+ years as a broker and property manager, but does not have first hand experience in acquiring multifamily.
*Asked this earlier on a couple FB groups, and got some great answers from @Todd Dexheimer@Dan Handford@Lennon Lee and others, just looking to see if the BP community has any more input.
Great point, Yonah. I suppose if I did I could probably make a killing. Trouble is, I've spent 30 years building a reputation and there's too much risk in it for me. The market is uncertain, and some sponsors that don't have the strength to be their own KP/loan guarantor might be at a greater risk for their deal imploding when the weather gets stormy. That leaves me to patch it up, take over, contribute money, or any number of other unfavorable things. I could profit, sure, but from where I sit my downside is greater than my upside. I make my money doing real estate investments, and if someone else's deal jeopardized my ability to finance my own deals, I threw my whole career away just to make a few dollars. I'll pass!
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
7y
Thanks for the shout-out, @Yonah Weiss. Unfortunately I can't help you because I am my own KP/loan sponsor/loan guarantor. I haven't found myself in a position to need to pay someone else to take that role. I guess that makes my standard fee 100% of the GP profits. LOL
Thanks for the shout-out, @Yonah Weiss. Unfortunately I can't help you because I am my own KP/loan sponsor/loan guarantor. I haven't found myself in a position to need to pay someone else to take that role. I guess that makes my standard fee 100% of the GP profits. LOL
I figured you might be on the KP side, offering that to other newish investors. If your not, you might want to consider it, from the going rates I've been hearing, lol.
Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
7y
@Yonah Weiss A lot of it depends on the size of the deal in addition to the sponsors experience and track record. I have seen anywhere from .5 to 3% fee and or anywhere from 5 to 20% equity in the deal.
Again all depends on the size of the deal and the risk.
Great point, Yonah. I suppose if I did I could probably make a killing. Trouble is, I've spent 30 years building a reputation and there's too much risk in it for me. The market is uncertain, and some sponsors that don't have the strength to be their own KP/loan guarantor might be at a greater risk for their deal imploding when the weather gets stormy. That leaves me to patch it up, take over, contribute money, or any number of other unfavorable things. I could profit, sure, but from where I sit my downside is greater than my upside. I make my money doing real estate investments, and if someone else's deal jeopardized my ability to finance my own deals, I threw my whole career away just to make a few dollars. I'll pass!
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
7y
5-10% of the deal (15-30% of the GP) (non-recourse debt). It can also be a lower % with an annual loan fee...similar total compensation. All of this is widely variable even outside of these figures.
Specialist · Austin, TX · Member since 2017 · 137 posts · 109 votes
7y
I've had sponsors tell me, as low as 5% equity (GP), generally around 10%+. If the sponsor is maybe less experienced and/or really needs the KP, it could be 20+% range; depending on a mix of variables (needs, experience, Loan amount, asset type, terms, time table, etc)
In some cases (presumed rare cases), I heard from an experienced GP that a seasoned KP "may" get up to 50% (yes, quite high) by bringing solid experience and comprehensive value to a deal. I presumed that was more for first time, or low experience, sponsors. I see that as likely being a one-off and more likely on the smaller asset range where the general percentage ranges would not generate a $ value high enough to get a king sized KP to look.
On the other end, 0% can be had as well. I'd tend to throw out the far end numbers and go with the 5-10% up to 20's% ranges as what I've heard or seen the most.
Great point, Yonah. I suppose if I did I could probably make a killing. Trouble is, I've spent 30 years building a reputation and there's too much risk in it for me. The market is uncertain, and some sponsors that don't have the strength to be their own KP/loan guarantor might be at a greater risk for their deal imploding when the weather gets stormy. That leaves me to patch it up, take over, contribute money, or any number of other unfavorable things. I could profit, sure, but from where I sit my downside is greater than my upside. I make my money doing real estate investments, and if someone else's deal jeopardized my ability to finance my own deals, I threw my whole career away just to make a few dollars. I'll pass!
Great point! No amount of money is worth the loss of hard won reputation.
Also, you probably know this better than most, but there is a big difference between the #s promised by newbie syndicators and actual performance (which is where the rubber meets the road).
I've seen the compensation range similar to what @Greg Dickerson has mentioned. Also it depends on what KP is bringing to the table and to what extend: experience (how many years, is it directly related); balance sheet (full vs partial deal coverage), as well as whether they are going to be handling anything or much in a deal. At the end of the day, everything is negotiable to a degree.
North of Houston · Member since 2018 · 350 posts · 181 votes
6y
@Yonah Weiss I am sure everybody is different and it varies on the amount of time, work and risk evolved.I wont go to NJ but if you were doing something with in a few hours of where I live, I could help.
to answer your question, I take about 50% but its usually me doing all the work for a very small salary. The idea is to get leased up the right way and sold
If the KP is only bringing half of the net worth requirement the GP's are missing, I would say 5%. Normally a KP brings in experience, net worth, and liquidity, then i'd say ~10%
Investor · Newport Beach, CA · Member since 2019 · 190 posts · 176 votes
6y
Many factors here. 1) how big are the deals, 2) how risky are the investments and debt structure, 3) recourse or non-recourse?, etc.
Speaking from large $10m+ multifamily transactions, longer term (7+ years) non-recourse debt, it's typical to have an upfront fee as well as equity. Typically the fee will range from 0.5% to 1.5% of the loan amount and will be combined with a percentage share of the sponsor fees in the range of 15-35%. As other members have mentioned, these numbers can very significantly beyond these ranges but this is what I'd say is reasonable.
Cost Segregation Expert and Investor · Lakewood, NJ · Member since 2017 · 1k+ posts · 1k+ votes
6y
Thanks @Bobby Larsen for the additional opinions. What I've found is that there is a HUGE spectrum, and a lot of contributing factors to determine the terms and fee structure.