Syndication Entity Structure?

Question

Let’s say a real estate private equity firm like Cardone Capital, MLG Capital etc sets up their deals like this:

8% preferred return, 1% acquisition fee, 1% asset management fee on revenues,1% disposition fee and a 70/30 profit split. Money is shared with investors and the management firm ( Cardone Capital, MLG Capital etc ) of the money paid to the management firm how is it split with sponsors and employees is it based on time worked, due diligence, who’s managing the deal etc?

Could someone please tag experts who have companies like this and can tell me how they structure things please as it would be a huge learning curve for me.

Joseph Firmin · Answer

Typically the 30% which you mention above is split between the general partners. The general partnership LLC is structured according to the agreement and it could be many different ways depending on the number of people in the GP.  That split is agreed upon up front. Let's say you have 3 people (LLC's) that are members of the GP LLC, they agree to split the GP 33.33% each. The operating agreement for the GP LLC should specify in an addendum which responsibilities each party to the agreement has. For example, one party is responsible for the loan guarantee and due diligence, another responsible for raising capital and asset management and the other investor relations... just a high level example, obviously you should be more detailed than that.

I hope that makes sense. There are some books on this including Vinney Chopra's Apartment Syndication Made Easy, Joe Fairless' Best Ever Apartment Syndication Book, etc.

Bellman Tumasang · Answer

@Bellman Tumasang

@Alina Trigub and other experts anyone please tag them if you know any experts to help answer my question please I deeply appreciate it. Thanks.

Evan Polaski · Answer

@Bellman Tumasang If you are asking how Cardone/MLG/etc (established sponsors, with portfolios of properties), I would assume they hire employees with a salary and potential for bonuses based company objectives/roles.

Starting out, you generally have partners/principals who take ownership in deals and work for the chance to have large upside through the deals, but as companies become more established, you can typically afford salaries with bonus and not dilute your ownership of the company/property with more people.  And if you have enough deal flow/work, it is less expensive to offer a consistent salary than hire on an as needed basis.