Structuring Equity: Raw Land Acquisition + Commercial Build

[Summer Worden]

Would like your input and expertise...

I am the active investor and developing a commercial retail space, as well I have built the list of interested/likely tenants. How do I best structure the equity for my passive investors?  What are the fairest splits? 

Total deal includes the following: 

1) Land Acquisition: $225K, then a construction loan of $1.85M to complete retail build-out

2) Investors used to purchase land. ($225K total) 

Passsive Investor A) contributes $100K

Passive Investor B) contributes $100K

Active Investor (me) contributes $25K

Next, I take on the construction loan ($1.85M) to build retail space, enlist the leasing tenants, and conduct a long term re-fi to hold and manage the property.  

My question is: what is an appropriate equity structure? I have seen many refer to the 90/10 waterfall, but it seems like in this situation I am taking on more risk and contributing monetary value through the construction loan which is key to realizing the full capacity of the project --is 90/10 really a valid equity split or is there another split that makes better sense in this scenario?   (*clarify: Passive investors 45 & 45, and Active Investor 10)

[Chris Grenzig]

Summer Worden I agree with Ronald Rohde , close to 10% down seems very unlikely, usually you get a loan at about 65% LTV when going bridge debt depending on the project and the lender. I'm also assuming that you mean it's a recourse loan if you say your taking responsibility. You need to look at what you are willing to risk and what you stand to gain if you do this project. If you stand to sell this for $3 million in 2 years you're return is going to be very low and not worth the risk of being liable for a $2 mil loan. Now if it's $10 million sale in 2 years we'll that's a much different story and might be worth it. You need to run the numbers and figure out what you're "oh ****" scenario is and how do you cover yourself in that situation.