Entity Ownership vs. Payout Structure
Hey everyone,
I recently left my W2 consulting job to pursue CRE. I have an LP financially backing this venture, but since I don't have the assets or experience, finding lending has been a challenge.
What I'm thinking:
Bring in someone with CRE experience to the partnership and make them the sponsor. The idea would be to use them for funding and pay them X with a buyout clause.
Brainstorm #1
Is there a way to structure the entity where I might own 20% of the entity, the LP backing this venture would own 20%, and then the new sponsor would have the remaining 60%, to ensure underwriters are focusing just on the new sponsor? But, still have a waterfall where the payouts would be completely different than the ownership. Is there a way to do this? Maybe 60% ownership for this new sponsor is common stock, but have mine and the LP as preferred?
Brainstorm #2
Create a trust to own the entity purchasing the CRE, with me as the trustee. Can I appoint a sponsor to represent this transaction, while myself and the investor stay out of view of the underwriting team?
Open to other ideas! Thank you
#1 All Forums Contributor
- Investor
- Virginia
@Zac Smith
You can structure it any way you want.
Typically there is a GP, LP(s) and debt financing on a CRE deal
The debt financing is a loan from the bank but they will be first position in front of the LP’s but have no equity position.
If you are not using debt financing, you could bring on other LP’s
The question that is going to be asked is “what are you bringing to the table?”
Quote from @Chris Seveney:
@Zac Smith
You can structure it any way you want.
Typically there is a GP, LP(s) and debt financing on a CRE deal
The debt financing is a loan from the bank but they will be first position in front of the LP’s but have no equity position.
If you are not using debt financing, you could bring on other LP’s
The question that is going to be asked is “what are you bringing to the table?”
Thanks, @Chris Seveney.
I think the issue I'm running into is I'm the one networking and finding deals, evaluating them, and then will be the one implementing the value add strategies. However, lenders see that I have no CRE experience and don't want to play on the playground with me. Which I understand. But I do still have consulting experience in advising senior leaders of companies on how to reduce OpEx and increase profits, so to me, this isn't foreign.
I'm curious if there is a way I can position the purchasing entity where the experienced sponsor can be the one evaluated by the underwriting team, while myself and the equity investor still have a payout that is different from the equity ownership. I'm thinking a Series LLC may host an opportunity for this?
#1 All Forums Contributor
- Investor
- Virginia
@Zac Smith
How much does your equity partners have? Is it worth paying all cash for the first transaction?
Quote from @Chris Seveney:
@Zac Smith
How much does your equity partners have? Is it worth paying all cash for the first transaction?
Half a million. Maybe it is good to just focus on a small deal that we can rehab for the first one.