Multifamily Deal Rates

9 Replies

Hello,

I am looking at investing in a 200-unit multifamily complex and am interested in feedback on the following fee structure and terms.

Fees:

  • 2% of Project cost for an upfront development fee, which would be 5.7% of the equity raised
  • 4% of Revenue collected for property management
  • 1% of Revenue collected for asset management

Terms: Investors will be paid a 7% annual non-compounding preferred return on unreturned capital, then 75% of the proceeds to a 15% IRR, and 65% of the proceeds thereafter. Profits (after debt service) will be distributed in this order:

  1. Investor return of capital
  2. Investor 7% preferred return
  3. 75% LP/25% GP to a 15% LP IRR
  4. 65% LP/35% GP thereafter

@Matt Wills this all looks pretty typical. Is this new construction? If returns are not cumulative and compounded there would not be a return during construction and stabilization. How is this addressed in the OM?

@Matt Wills

A lot comes down to what you consider good returns. I would discourage from investing in the first thing that comes your way. Rather look at several offerings to see what's out there and determine what works best for you. 

Best of luck!

@Matt Wills funny you would post this.  I am just in the beginning stages of putting together a multi family deal as well. Not the same scale but it’s all basically the same just a extra comma.  

I was looking at 


1- no return if capital until the 5/10 year point, it isn’t enough value add to pull it all back out.

2- 8% preferred return on investors investment. Not new construction so I can offer that and if it cuts into my bottom line so be it. I'd rather make investors repeat investors then not fulfill a promised return on investment.

I like the sliding scale of performance though.  Gives the general partners a reason to excel. I’m going to add that into the numbers as well.  Though mine favor the GP over the LP and it’s still looking like a annual 8% for the LP and 15-19% at the end IIR for them.  I’d be in for some cash but not the majority of it.  

Now I need to run more numbers.  

Originally posted by @Greg Dickerson :

@Matt Wills this all looks pretty typical. Is this new construction? If returns are not cumulative and compounded there would not be a return during construction and stabilization. How is this addressed in the OM?

This is a renovation project. The thesis is that it's currently a C property in a B area so the opportunity exists to improve the property and increase the rental rates. 

 

Originally posted by @Tj Hines :

Hey @Matt Wills! What's your specific question? These structures are pretty normal across the board if this is what you want to know

Hey Tj! I am most interested in hearing if the upfront and ongoing rates are in line with market rates.

 

@Matt Wills the real question is how confident are you in the team behind the project? You will find very quickly that sponsors who are good do not work for free. If you confident and trust in the team and still like your net return then the fees are no longer a deciding factor as to whether or not you should invest. Hope this helps!

Agree with @Scott Morongell . The experience of the sponsor and the team behind them are important. Did they provide all the details and bio's of the team behind them? Who are they using for construction, PM, lending, title, attorneys, and etc. Do they have back up team members if any of these members fail to meet the requirements?

How is the communication of the sponsor?

Since this is a reposition of an asset, what submarket data has been provided to support the case?

4% for PM is a little above average for a 200 unit property.  In my neck of the woods it would be 3%.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here