Structuring Acquisition Fees

[Snehann Kapnadak]

Hi All,

How do you present a deal to an investor with the goal of being compensated for it when it closes via an Acquisition Fee? If I find a deal, but don't have capital to bring in and instead work on underwriting, due diligence, and seller/broker relationships, and present it to an experienced investor who closes on it, at what point should I ask for an acquisition fee? I feel a little odd asking, although I know that I should be compensated for my efforts and for finding the deal in the first place. 

What are the logistics of making sure I get the fee? Do I need a to get a contract written up that states what the fee will be? Do I do that from the beginning or should I wait until we get the deal under contract? My fear is that I'll do a lot of sweat equity on the acquisition and the investor will take the deal and close it by themselves and cut me out (this has happened to me to some extent once before).

Any insights would be greatly appreciated. Thanks in advance!

[Todd Dexheimer]

A 2% acquisition fee on a syndication is standard. I don't ask for the fee, we just include it as being a part of the deal and are transparent about it. When you underwrite the deal, you include the fee and when you present it to investors, you include the fee. It is just a part of the deal and if they want to invest with you and in the property, they understand that all the fees and splits that you disclose are a part of the deal. 

As for not putting money into the deal - I personally recommend that you put your own money in the deal. If you buy a property and get a $150,000 acquisition fee, you shouldn't have an issue with putting a large chunk of that or all of it into the property on the LP side.