MF Syndication - Sponsor Compensation Question

[Russ Olivier]

Hello BPers! I'm primarily a SFH investor and new to the commercial investing space so apologies if this is a basic question. I am considering investing in a MF syndication and wanted advice on the compensation model that's being proposed. The Sponsor in this case is proposing to get a 15% equity position up front for putting the deal together. They would not charge any acquisition fees, asset management fees, or disposition fees. There would be no preferred return .. they would share in all future cash flows at 15%, with 85% going to the LPs. They also own a Brokerage company and Property Management firm so they would earn fees in these areas as well, but no higher than what other firms would charge as far as I can tell. The Sponsors are putting their own $ in the deal (10% in this case), but that would be treated as an additional equity investment, and they would receive an additional 10% of the cash flows. So my question ... is this a normal structure for a syndication? And what pros/cons are there for deals like this that I need to watch out for? Thanks in advance for any help!

[Bryan Hancock]

The sponsor should be compensated fairly for the services provided.  The syndicator "hires" themselves for brokerage and various other activities.  These should be in line with the market.

In general high up front fees discourage great upside and performance to move the needle for investors.  I generally structure my deals with very little overhead or up front fees and a healthy portion of the upside if we move the needle.  Any syndicator that is loading the deal up with fees they take whether or not the deal goes well is telling you what they think of the deal.  Listen to what they're telling you.