Syndication Structure for Long Term Hold

[Nicholas Cook]

Hi Everyone,

I am a partner on a 55 unit apartment development in Portland, Oregon. The development site is an excellent location and a reason to hold the property long term.

We need to raise equity and under a typical waterfall structure, it seems that a significant portion of the building value would be given up to the LP side unless we cash out the investors down the line, which may or may not be popular. 

Does anyone have any suggestions on how to structure this? We are more than happy to give up cash flow for long period of time if that means we ( the sponsors) can capture more equity. 

Any input is greatly appreciated.

Thank you.

[Spencer Gray]

Have you considered a tiered waterfall structure?

For example:

Investors get a 9% Preferred Return and a 80/20 split until they achieve a 15% IRR, after that the split inverts to 20/80? Or you could do multiple hurdles (80/20, 70/30, 50/50) depending on the upside, your track record, investor appetite, etc. This way your interest are aligned to the investor as the GP side doesn't receive much cash until the investor gets a solid return. If you hit it out of the park the GP gets a nice chunk of the upside and everyone is happy.

If your investors aren't that sophisticated you might want to have a more simple structure as a confused mind often says no.