Land Owner & Developer Partnership

[Armin Jason]

Hi everyone,

I have a piece of land that I would like to do some development on it. I would like to partner with a developer/constructor (not sure what's the term) who is telling me is able to find private investors to invest in the project. The estimate cost of development is ~4M. The developer told me the investors will get XX% interest on their investment. I wonder what's the normal split of the remaining of the profit between myself and the developer - provided that the developer is not putting any cash, but will be taking care of everything from getting the permits, drawings, etc. all the way to overseeing the sales of the units. To recap here are the players:

Land owner (myself): will provide the land.
Developer: will private investors, oversee the project from beginning to end (estimated 2 years).
Investors: will provide funds for the project.

Thanks you for your help in advance.

[Zachary Hickman]

There's a lot of "it depends" to this answer. I posted a similar reply in another thread earlier today, but there are two ways people get "paid" in projects. One is the "development fee". Basically, this is someone's cost to manage the project. In my day job firm, it's 4.5% of managed costs. Those are usually hard costs from your contractor, A&E costs, permits, legal, marketing, consultants, but it excludes contingency, financing fees, the dev fee itself and other things that aren't specifically managed by the "developer".

Now, for profit splits, it's a different ball game altogether. Some investors will want a specific return and anything less or more will be ignored. If you can find an investor who only wants X% and you make 2X% and get to keep the rest, let me know so I can partner with them :) 

Usually for projects I'm involved in, there's a waterfall in the proforma with promotes. Our projects are huge, and complex. For smaller ones like yours, I don't think you need to worry about those things. In speaking with potential investors on my projects, most are flexible with the terms, while others have been firm. Some are willing to do a 50/50 split once they get paid out their initial investment. Others have wanted 85% of the profits since they're putting up most of the capital/equity. There's no single or correct way to divvy up the profits, just do what makes you and them happy. Remember, if you aren't putting any skin in the game, any profit is great. Don't get greedy in your quest. 

Best of luck!