For Syndication, what is the % ownership typically charged?

[Arun Iyengar]

I get requests from friends to invest and manage their investment in a multi family building. My question is:

1. What rate of rent do you charge as management fee for yourself, assuming you still contract with a 3rd party property management company? For example, charge 8% of which a larger portion goes to the property management company and smaller to you?

2. What % of ownership do you retain for yourself, even if you did not put any money down, to grow the value of the property? For example, own 20%, but such ownership is only above the purchase price valuation?

Feedback from experienced syndicators would be appreciated.

[David Thompson]

Hi Arun,

We see 70/30 (GP/LP) splits pretty common with experienced syndicates. On the GP side, they can range from 20% to 50% depending on returns targeted for the investor and experience level of the sponsor. The splits will typically start after the 8% preferred return is paid out to LPs. This favors LPs. Some syndicates will do a catch up after 8% where they receive 100% after that until some point where the project is back to a full 70/30 split. Waterfalls are also common after a targeted return to investors hits say 18%, then the split may change to say 50/50 for every $1 distributed above that 18% IRR. This does not cap the investors return but further rewards the GP for exceeding expectations.

For property mgt fees, typically see 3% and asset mgt fees of 2% for the experienced syndicate.  The asset mgt fee is to support the efforts of the syndicate to hold the property manager accountable to execute the business plan and optimize the value for the investors.  The asset management fee is usually based on the monthly revenue.  A good syndicate will have a lot of flexibility on when to pay itself this 2%.  Ex. take the 2% only after the 8% preferred has been paid out or defer it during a weak market.