Questions on closing a deal with senior care business
Real Estate Investor · Conyers, GA · Member since 2017 · 18 posts · 2 votes
Questions on closing a deal with senior care business
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Real Estate Broker · Walnut Creek, CA · Member since 2014 · 105 posts · 58 votes
9yHi Xavier,
My groups is currently serving as lead investor and developer on a ground up 80-100 bed senior housing deal in the Bay Area, CA.
The type of deal you can negotiate depends on the value you're bringing to the deal. I've seem some deal brokers who've made a small finders fee for connecting an investor to a project sponsor. I've also seen deal makers that 1) find investors, 2) find land and 3) entitle land and get a healthy equity percentage in a deal without contributing any of their own money. It all depends on the relationship you have with the senior living operator and how you negotiate with them based on the value you're bringing to the deal.
If you're finding the property, are you acting as the buyer's broker (assuming you have a license)? That's one way to be compensated for your efforts. If you're bringing investor money to the table, that's yet another service you're providing critical to the deal.
Whether you can have them sign an exclusivity agreement again comes down to a business negotiation. As someone sitting on the other side of the table, I can't image ever signing an exclusivity agreement locking my group in to working with one deal broker. What's far more likely is an a-la-carte arrangement where you'll be able to command some level of equity/compensation for those deals that this senior living operator joins you on.
Another idea is shopping your services with other senior living operators. Bidding and creating competition for your services is always the most powerful force in any business dealing.
6 Replies
- Real Estate Broker · Walnut Creek, CA · Member since 2014 · 105 posts · 58 votes9y
Hi Xavier,
My groups is currently serving as lead investor and developer on a ground up 80-100 bed senior housing deal in the Bay Area, CA.
The type of deal you can negotiate depends on the value you're bringing to the deal. I've seem some deal brokers who've made a small finders fee for connecting an investor to a project sponsor. I've also seen deal makers that 1) find investors, 2) find land and 3) entitle land and get a healthy equity percentage in a deal without contributing any of their own money. It all depends on the relationship you have with the senior living operator and how you negotiate with them based on the value you're bringing to the deal.
If you're finding the property, are you acting as the buyer's broker (assuming you have a license)? That's one way to be compensated for your efforts. If you're bringing investor money to the table, that's yet another service you're providing critical to the deal.
Whether you can have them sign an exclusivity agreement again comes down to a business negotiation. As someone sitting on the other side of the table, I can't image ever signing an exclusivity agreement locking my group in to working with one deal broker. What's far more likely is an a-la-carte arrangement where you'll be able to command some level of equity/compensation for those deals that this senior living operator joins you on.
Another idea is shopping your services with other senior living operators. Bidding and creating competition for your services is always the most powerful force in any business dealing.
- Real Estate Investor · Conyers, GA · Member since 2017 · 18 posts · 2 votes9y
Thanks @William Yeh for the feedback!
I am not a licensed broker. I wasn't planning on brokering deals like that but this opportunity came up. The operator has not done any new development yet (they have been using existing properties) but they told me they are interested in building a property from the ground up.
You mentioned that you have seen deal makers getting a healthy equity percentage when they significantly contribute to a deal, how much equity are we talking about?
I agree that it will come down to the negotiation with the senior living operator but also with the investor. With a 20% annual return, it is a fairly attractive deal so the investor should have incentives to compensate me as well either with a one-time fee or equity. I personally prefer to get equity (even small) since I am interested in building monthly cash flow.
I figured that getting the operator to sign an exclusivity agreement would be difficult. I am not trying to limit them to only work with me, the agreement would require that they have to work with me if they want to partner with my investor on future deals. They could still work with another broker as long as he/she connects them with another investment group.
I like your suggestion to shop my services with other operators. It will give me some leverage during negotiation.
- Real Estate Broker · Walnut Creek, CA · Member since 2014 · 105 posts · 58 votes9y
Hey @Xavier
For partners that contribute investor funds, securing land, and handle entitlements, I've seen as much as 20% equity. I wouldn't take that to the bank as it's certainly not like pulling comps on a home but hopefully that gives you an idea.
Instead of trying to sign an exclusivity agreement with the senior housing operator, you may want to consider organizing your operations into an investment fund/business entity such that you own the relationship with your investors. When you place investor capital in deals, it would be your business entity that inks a deal with the senior housing operator. I can't say I've ever done that before so talk to an attorney but in concept, such a structure would allow you greater control over the relationships. That said, if your investors really want to circumvent you and work directly with the operator, they'll find a way.
@Xavier Caboundefined
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes9y
Xavuer Cabo said: "They guarantee a 20% annual return and have triple net arrangements."
ANY company or outfit that guarantees a return or says they do you should run from as it doesn't exist.
Any investment has the ability to lose money. In the investment documents drawn up by an attorney it should state that over and over again.
In a new development deal there is generally NOTHING paid out for at least a year while the property is being constructed. It takes awhile for revenue to come in for build out and stabilization.
- Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes9y
@Xavier Cabo an exclusivity agreement probably wouldn't fly, but having both parties agree that they could not do a deal with anyone that you introduce them to, without including you in the deal. At least you would grounds for a lawsuit if they went around you.
- Real Estate Investor · Conyers, GA · Member since 2017 · 18 posts · 2 votes9y
@William Yeh My friend actually suggested this same idea of creating my own investment fund a few days ago. It is a lot more work to set this up but this approach has some significant benefits down the road. As you said, I would need to meet with my attorney to discuss the details of how to structure it.
@Joel Owens Thanks for the input. I misspoke when I said they told me they guaranteed 20% return. During our conversation, they mentioned that they have compensated their investors about 20% over the last 6 years. None of their previous deals were new developments. You bring up a good point regarding the construction duration delaying investor return, no pay out until the property is completed and revenue comes in.
@Jeff Greenberg thanks, your suggestion is a good alternative to the exclusivity agreement.
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