Need suggestion on partnership options

[Amit Barman]

I am an Architect, Design-Builder. I am working on teaming up with Land Developers, Builder and Land owner to Develop a residential community in few phases over 70 Acres of land.

I will bring my design expertise on the table along with marketing. I will also bring in the initial investors/buyers on the table(at least 25  to 50 units, who already showed interest to be part of the community).

I and my office may/may not be part of the building, may fully leave it to the developer/go for a third party GC/can pick up partially or may purely just supervise the project, have not detailed out the tasks and responsibilities yet.

Thinking of a suitable partnership deal with the developer and land owner so that everybody wins.

Anyone made any deal similar to this? I would really appreciate if you could share the breakdown of the deal if you made any.

Thank you so much!

[John Blackman]

There are so many ways to skin this.  It all depends on how you split the capital stack.  This deal might look something like this:

Equity Investors - cash for the land, prestarts, planning, engineering

Bank Debt - Construction for phases only

Promoter - Entity riding heard over the deal and responsible for moving all of the chess pieces and getting it done on time.

The Equity Investors are typically going to provide at least 20% of the total capital required in order to finance it.  For larger projects this may be more as pre-development costs for a project of this scale can be intensive.  Equity investors take the most risk and will typically get a preferred return and then a split of the profits.  You can also offer a pure split.

Whomever is providing the debt (assuming it is recourse debt) should also get a portion of the profits, and the promoter is going to get a portion of the profits as well as a development fee, especially for a project this size.  They will need to eat before the project sells in 18+ months.

Service providers like GCs, Architects, Engineers etc get paid fees for their services.  If they forgo their fees in exchange for equity, then they can participate as equity share holders in the amount that their fee would normally be, but they just get paid at the end.

You can ultimately propose whatever you want, but each party brings value to the deal and should be compensated accordingly.  There are not hard and fast numbers.  A lot depends on your market and the duration of the project.  If you are doing multiple phases, you may want to do a discount cash flow analysis because you will need different parts of the equity over time.  Early money should make more than late money.

Your proforma is going to be pretty complex for a project of this scope.