Typical General/Managing Partner or Asset Management Fees?

Question

Hello commercial or syndication investors.

I know this may be a very broad question, and there are many variables involved in coming up with specific number.  But based on your experiences, what is a reasonable fee to charge as a general or managing partner of a entity where you will be managing the asset(s) on behalf of the investors?  In this case, the properties will be turnkey so will not require as much oversight as repositioning a property to drive NOI, but will be more of an asset management role to oversee the property managers, run financial reports, and putting the deal together, etc.

Tim Shoultz · Answer

Is this the first syndication you have done? I assume so. If you are trying to create a business out of it, demonstrating success is a great way to start, so I would be willing to take a smaller fee on the first 1 or 2.

There are lots of variables.  In the deals I do, I am 100% in control and take a majority of the risk.  For example, someone will likely need to personally guarantee the loan.  Will that be your or will your partners be on the hook for that as well.

Lots of models out there.  If you are doing a true 'silent partner' model where your investors are only risking they equity they put in, most models end up around an 80/20 split with 80% of profits going to investors and 20% of profits going to the managements/sponsor.  Generally investors will also get some kind of preferred return.  I use the following model on my deals:

2% finders fee, 1% asset management fee.  I do not charge any other fees, such as disposition, etc.  Expenses like property management and leasing also comes out of operating income.

• 6% preferred return calculated yearly. (goes to paying investors initial investment back).
• Any additional yearly return is split 80% going to investors, 20% going to Sponsor.
• At sale, investor is made whole on their initial investment.  80% of remaining funds go to investors, 20% to Sponsor.

I've typically been targeting annualized returns of 18%-20% or more back to investors, though that is getting harder to do as the market improves.

There are a lot of models out there and some are significantly less generous to investors.  On my first deal, I took a much smaller percentage of profit so that I could work to gain trust and demonstrate success.

On a side note, if you are going to have truly silent investors, you are walking into the world of securities.  They are regulated and require you to follow certain guidelines.  Your investors need to be accredited or sophisticated, you need to be careful about advertisement and you need to follow the correct guidelines.  The easy way to go about this is to pay a good attorney to help you with it.  Most of them will charge about $10K to put the full document package together.  You can do it yourself or for far less but there is more risk there.  I have used an attorney from day 1 and do not regret that decision at all.

The consequences for not following the Regulation D Guidelines are stiff...I would take them very seriously.  :)

Tim Shoultz · Answer

Property Management fee's are generally 3% - 5% depending on the building, tenants, etc.

Syndicators charge all sorts of fee's and it is more complicated than just an asset management fee in reality.  We charge a 1% fee on raised capital for our asset management fee, but there are clearly other fee's associated with the broader model.

80/20 split on profit sharing, waterfall models, etc.  I'm not sure if you are asking about that or just the actual asset management fee.

Tim Shoultz · Answer

That is a tough one.  You are basically building out a new unfamiliar model.  I would prob just go back and take some kind of carried interest stake along with a finders fee.  The way I look at is that the finders fee is for putting the deal together and taking both time and risk on that aspect. If the deals falls apart and you don't close, it is on you, so you should be compensated for that risk when you do close deals.  Carried interest is a really easy way to split proceeds.  You could do an 80/20, 90/10, 95/5 whatever you want.  Then when you sell, pay back equity and take the same split on profit.  I will say so for all the work you will end up doing, 5% is not enough.  You should take at least 10% of profits as you will be doing a TON of work.

Good luck.

Tim Shoultz · Answer

If you are fair, you will likely not get a lot of push back. If you can justify your worth to them it should not be too bad.  Let me know how it goes.

Chad U. · Answer

Thanks for your input @Tim Shoultz .  I do need to take the time spent and risk into consideration, so a finder's fee and carried interest split seems like a fair method.  I'll have to discuss this with my investors to get a consensus, but will be tough as each will have their own opinion of what is fair!

Chad U. · Answer

@Tim Shoultz , thanks for your detailed response!  I have been involved in putting syndications before on multis and have used a similar model as you've described above.  Generally have always tried to offer the investor a 9+% CoC return in addition to equity appreciation for a 15-20% annualized return.

In this case, this is a fairly new concept (to me anyway) and for this first deal I have agreed to split all proceeds equally with my investors on both cashflow and equity.  However, since I am putting the entire deal together, doing all the research on the area, vetting the PM, inspecting properties, finding the lender and will be overseeing the portfolio day to day; I'm trying to determine a fair compensation for this.  I am thinking somewhere around of 5% of cashflow.  Of course, if I am the only one guaranteeing the loan, I would expect some additional comp as well.

As for the investors, they are friends, family and acquaintances with RE investing experience so this shouldn't fall into the securities camp, but will have a lawyer to put it all together to be on the safe side.

Chad U. · Answer

@Mike Giudici @Tim Shoultz  Many thanks for your replies.

These are pooled SFR's into a commercial portfolio loan, so not really a commercial property but more resemblance to a multi-unit.  As I'm investing into the deal as well, just trying to determine what is fair to allocate as the fee for managing the portfolio since the investors will be limited or non-managing partners.

Mike Giudici · Answer

Asset management fees are typically around 3%.

Typical General/Managing Partner or Asset Management Fees?

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