Syndication Fees Syndicate Fees- Are these normal????

25 Replies

  • Acquisition fee 2.95% of purchase price of asset
  • Disposition fee 1% of sale price of asset
  • Asset management fee: 1% of equity raised
  • Fund admin fee: .25% of equity raise

Their waterfall is 70/30 split until 13% IRR then 50/50

@DongHui Patel The fees that you listed are normal for most syndication deals.  Are you investing through a fund or in an individual offering?  The fund admin fee isn't as typical for individual offerings, but it's very common for funds.  Many operators are doing 70/30 splits currently and the waterfall seems reasonable too.

Originally posted by @Charles Seaman:

@DongHui Patel The fees that you listed are normal for most syndication deals.  Are you investing through a fund or in an individual offering?  The fund admin fee isn't as typical for individual offerings, but it's very common for funds.  Many operators are doing 70/30 splits currently and the waterfall seems reasonable too.

 WHat about a catch up provision in the waterfall? Is that normal? 

Also is it normal to be senior to return of capital to a /b investors?

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Fees are too greedy. I am ok with acquisition fee and asset management fee as %% of the collected rents. 

However,  in this case they charge asset management as %% of equity. That's not right!

Catch up provision on top of it is way too greedy.

@DongHui Patel Every deal is structured a bit differently.  Catch up provisions aren't included in every offering, but they're certainly not out of the ordinary.  And what exactly is senior to the return of capital?  The catch up provision?

@Nick B. Funds typically charge an asset management as a percentage based on the amount of equity.  Accordingly, many more experienced operators are starting to do the same.  In many cases, it's similar to what any other professional money manager does.

I think 1% for the acquisition fee since when I am explaining to investors I want to be able to speak with conviction when I tell investors my goal even if the deal goes bust is to pay the investors, first.

Supposing, you do a $5 million property at 3% = $150,00. That is a ton of money for just putting the deal together and 1% or $50,000 is still more than enough money.

A syndicators first goal is to make their investors feel safe and you pay them, first. Personally, I would not pay you 3% because syndicating and putting deals together is not all that complicated. You can either do it or maybe you should not.

@DongHui Patel The fees you listed look reasonable for a syndication. Should note that the returns quoted are inclusive of the fees the syndicator charges for putting the deal together and managing it during the hold period.

The fund fee is also reasonable and normally covers costs associated with establishing and managing the fund.

@DongHui Patel one thing to think about is the syndicator has to outlay money up front as well - inspections, attorneys, loan fees, travel fees to the property. They aren’t asking for reimbursement there - it’s contained in the acquisition fee. One other thing is your syndicator needs money personally for food, rent, etc so he/she can run the property efficiently. Not sure if it’s “fair”, but something to consider.

I've been developing a software program for analyzing all types of real estate deals and have been working heavily on the syndicating section. If anyone would like a free copy, or to help develop I can always use some help. Last week, I purchased a software online and it ended up being a spread sheet that is too difficult to use. Attached, are some screenshots for what I am working on.

The way I set the software up is so to analyze a property you only need to enter information in the tan colored fields. When you get a prospectus for a property you need to do the side-by-side column to check the broker's numbers, enter your own default numbers and compare. Then, for the 3rd column, you project what your pffer and the last column is for what you actually pay. The property in the example is for the property my son purchased in March 2021 after he sold his 5 Las Vegas homes.

I also sold all my homes in Las Vegas and am super happy I don't have to deal with the out-of-my-area contractors, tenant problems, management company problems and many other things. Now, since properties are so expensive in California I am going back to syndicating. I was syndicating back in 1980 and stopped because I was too business with my construction business.

I'd say the accumulation of all of those fees is what makes it excessive. Also, typically the AM fee is 1-3% of the collected revenue. If this is a fund, then it's often a percentage of the money raised, but 1% is high. I am also not a fan of a disposition fee - especially as much as 1%

@DongHui Patel. Great question.  I’m not going to directly address the question because the answer depends on the track record, team, and projected profitability of the syndicator in part. (For example, if they could predictably produce 30% annual returns with low risk, many would be happy to invest.) 


But I am going to potentially ruin someone’s day if you haven’t thought of this…


Let's just look at the acquisition fee and the liquidation fee and let's round those 4% total. That doesn't seem horrible until you look at what it really cost you as the equity investor: assuming a constant loan to value ratio of 70%, the cost to you is about 13% of your equity. That is 4% / (1 minus LTV (0.7)) = 13%+. And the syndicator will get that whether they perform well or horribly, assuming they don't lose it back to the bank of course.

So I ask everyone… Does this seem like a high fee to you now?  Would you pay 13% to your stock broker to enter and exit a trade?  

@Paul Moore notes an item overlooked by some.  "Let's just look at the acquisition fee and the liquidation fee and let's round those 4% total. That doesn't seem horrible until you look at what it really cost you as the equity investor: assuming a constant loan to value ratio of 70%, the cost to you is about 13% of your equity. That is 4% / (1 minus LTV (0.7)) = 13%+. And the syndicator will get that whether they perform well or horribly, assuming they don't lose it back to the bank of course.

So I ask everyone… Does this seem like a high fee to you now? Would you pay 13% to your stock broker to enter and exit a trade?"

+1 on that. 

Some deals can be setup with potentially disparate comprehensive risk to LP vs GP. The facts are somewhere in the PPM, OA, SA docs written by a legal team whose job is to first protect the GP interest. Read them closely. Sadly some only read them when the tide goes out and boats are already grounded.

Originally posted by @Ariel K.:

@DongHui Patel one thing to think about is the syndicator has to outlay money up front as well - inspections, attorneys, loan fees, travel fees to the property. They aren’t asking for reimbursement there - it’s contained in the acquisition fee. One other thing is your syndicator needs money personally for food, rent, etc so he/she can run the property efficiently. Not sure if it’s “fair”, but something to consider.

I think youre not seeing the magnitude of this. a $60M acquisition at 3% fees would be = $1.8M. $1.8M!!!!

What kind of upfront fees are being fronted that equate to $1.8M. That is rhetorical You can itemize the actual fees and they would be under $200k. So again, there is $1.6M upside here for no reason. This is money in their pocket, at the BEGINNING OF THE DEAL, and they keep it WHETHER THEY PERFORM OR NOT! 

@DongHui Patel I am not a syndicator, so take this with a grain of salt…if you are doing a $60 million acquisition, inspections alone could be $200k. You have to hire someone to raise money, attorneys for PPMs, loan costs - good luck doing that for $200k

We're in a high fee environment right now and even taking that into consideration, these fees are high.  Maybe I'm misreading, but no initial hurdle?  Just 70/30 out of the gate... after a 2.95% acq fee?

It's also important to know the expected hold period, especially as it relates to the acq fee.  A 3% acq fee is a whole lot material on a 3 year hold than it is on a 10 year hold.

Summary:  some of these fees seems high but others are close to standard.

Typically we have a 1% acquisition fee for deals >$30M and 1.5% - 2% for those < $30M. Asset management fee is 1% of the gross monthly receipts for the GP team to manage the 3rd party property management company (typically 3% - 4% fee of gross receipts for these bigger deals). We don't charge the disposition fee or a equity fee raise. We start at 70/30 split and keep that through the whole investment without a change upon hittting a specific IRR or total return.

Originally posted by @Nick B.:

@Charles Seaman, they can charge what they want but I find this fee to be unfair. 

In the beginning of my career, I used to think the same way, and on the first couple of syndications, I pegged asset management fees to revenue. However, then reality happened and caused me to rethink this approach. 

This asset management fee pays for what? For asset management, which means it basically pays for operations overhead, salaries, software, etc. 

Well, when things are running well, no one cares. But, when things turn sideways, you realize in a hurry that you wish you had more budget to hire more people, better people, more software, etc. When the revenue comes down, the last thing you want to be is hamstrung on the money you can throw at the issue. This is very similar to having reserves.

Granted, WhiteHaven may well be one of the more expensive sponsors out there. But, what we do is hard and very dynamic, and I wouldn't do it without being able to make plenty of money for myself and have plenty more for operations. I pay my office staff well, and I pay my construction guys more than most, which is why things run like they should and investors make money, which is the whole point.

Originally posted by @DongHui Patel:
  • Acquisition fee 2.95% of purchase price of asset
  • Disposition fee 1% of sale price of asset
  • Asset management fee: 1% of equity raised
  • Fund admin fee: .25% of equity raise

Their waterfall is 70/30 split until 13% IRR then 50/50

This deal is a PASS! This entire deal screams of money grab. What size deal is this?