Evaluating Shopping plaza Syndication Offering

[Sam Ng]

I am looking into a commercial plaza syndication deals. It is an acquisition from existing owner. all retail outlets are leased out for next 4-5 years. 

Wanted to pass thru you guys to get your opinion on this.

Details of Offering :

3% Acquisition fee (one time)

1% Asset Management (Annual)

Returns Split for Preferred return and disposition = 80%/20% (Investor/Sponsor)

5 year hold period

IRR: 15%

Average Annual return = 10% per annum

Average CoC return = 2.36

is the acquistion fee and sale return split  usual in the syndication world ?  anything out-of-norm from above terms ?

[Joel Owens]

No way as a syndicator myself I would agree to only a 20% back end promote. I would just keep closing commercial real estate deals as a broker. I make a lot of money that way.

For me to syndicate there has to be a big value add component to the property. My usual set up is 7 to 8% preferred return and 50/50 split on upside. 50% investors and 50% me.

You have to watch out for some syndicators that just front load fees on stabilized properties. The cap rate doesn't blend up much and they are syndicating to make money each time on the front end. Some do this so they can quit there jobs and make syndicating there new job. I don't have to syndicate to keep taking fees to make a living. Now I do have a fee upfront.

It's not abnormal to charge a fee going in as sponsor or a 1% asset management fee. The upside split is subjective and usually those offering 80% upside to investors are usually new to the space so more risk for the investor. The syndicator is trying to offer high split to investors on upside to get going.

I have seen say a 65/35 split sponsor but property is 50 million going in and has upside equity growth of 20 million so sponsor could make 7,000,000 back end promote.

Smaller property deals 50/50 is common for seasoned investors as sponsors. People flock to more perceived safety.