New Syndicate formation question on preferred return

[Matt Wilkes]

Hey All,

I have a question on what is typical when it comes to preferred rates of return. I am running out of my own funds and have engaged an attorney to set up my first syndicate. I am noticing a standard in the fees. 2-2.5 in acquisition, disposition, 1.5 to 2 on management. But what is typical for an investors preferred rate of return?? I was thinking 6 but then I’d be targeting a cash on cash of close to 10% to give cushion for the fees. Seems tough.

Can anyone provide some guidance?

[Brian Burke]

6% to 10% is market with 8% being most common. Keep in mind that a preferred return simply means that investors receive 100% of the distributed cash flow until the hurdle is met. If there isn’t enough cash flow to meet the hurdle, the undistributed portion carries over to the following year.