KP Equity in a syndication?

[Aaron W.]

Hello all,

This is our first time doing a co-GP syndication with a KP.  We are talking with a potential KP to come onboard for their experience as we've yet taken down a property of this size.  What do you typically offer as far as equity or fees to a KP for their experience?  

For future reference, I'd also be curious to know what others offer KPs to have them onboard for their net worth or capital raising, etc?

Thank you in advance for your assistance.  Have a great day!

[Bobby Larsen]

@AJ H.

Depends on what they’re bringing to the table. For net worth, experience and liquidity, the typically range is 20-30% of the GP or a 1-3% upfront fee.

If they’re raising capital as well as the above then I would expect it to be dependent on how much capital they raise. If it’s close to half the a quarter or half the capital then probably 50% of the GP.

[Jeffrey Donis]

I agree with @Bobby Larsen. I've heard investors offering a % of the cash flow, and fees for signing off on the loan. They're taking on the risk associated with the property, so their compensation is contingent on the size of the loan and risk involved. 

[Aaron W.]

@Jeffrey Donis @Bobby Larsen

Thank you for the reply! In our case, the KP will not sign on the loan. We are only asking them to be on the team for their experience.

[Bobby Larsen]

@AJ H.

In that case, and assuming you sourced the acquisition, you’re really just looking for someone experienced to asset manage the property so I’d structure it based on cash flow- maybe 1-3% of revenue annually. I’m assuming they still won’t be the property manager so this is separate from the property management fee.

If you were steadfast on wanting to compensate them through GP ownership or maybe it’s required by your lender then maybe 10%. Or, do a combination of the two which would be an asset management fee plus a performance bonus at sale. Again, all of this really depends on the size of the property.

[Aaron W.]

@Bobby Larsen This is great information.  We will definitely apply this to our upcoming deal with the KP.

Have a great day!

[Todd Dexheimer]

Typically a KP is getting 10-20% of the equity for their experience and to sign on the loan. If you are not having them sign on the loan, then I am not sure why you need them. If it's for them to consult, then a consulting fee of maybe 1-5%. If it is for them to asset manage, then give them the full asset management fee. 

[Spencer Gray]

As a KP I've received both a finance/guarantee fee around .5%-.75% of the loan amount and/or 5-10% of the GP. Larger balance sheets would be able to negotiate for more, however.