Developer fees for 4-unit infill project

[Daniel Nied]

Hello BP community - question for you all regarding an infill development project in Colorado. 

Quick background: 3 partners have come together to form an LLC for the sole purpose of buying a parcel of land, developing it into a 4-unit condo, and selling each unit via a realtor.

• Ownership: Partner A @ 60%, Partners B & C @ 20% each. 
• Total invested capital: $1.3m
• Land: $1m - already purchased by LLC, ready to go. Plans approved by City
• Construction: ~$2.5m bank loan (secured by all 3 partners) 
• Timeline: 10-12 months construction, pre-sell 2 to de-risk loan (not a bank requirement), pre-sale others if psf @ or above market rates. Note: 6 months have already gone into land acquisition, demo of old structure, temp utilities, city permits, etc. 
• Profit: to be split based on ownership %'s listed above

The question: Partner A will handle most of the day-to-day in working with the GC, the city, architect, some finishes purchasing/deal hunting, utilities, realtors, and buyers (trying to limit to customization....!). What sort of development fee is appropriate for Partner A to charge the project from their other company for the development work?

Bonus question: what other deal structures could we have considered? Too late now but interested in any feedback. 

What other info can I provide? 

Thanks! 

[Greg Dickerson]

Originally posted by @Daniel Nied:

Hello BP community - question for you all regarding an infill development project in Colorado. 

Quick background: 3 partners have come together to form an LLC for the sole purpose of buying a parcel of land, developing it into a 4-unit condo, and selling each unit via a realtor.

• Ownership: Partner A @ 60%, Partners B & C @ 20% each. 
• Total invested capital: $1.3m
• Land: $1m - already purchased by LLC, ready to go. Plans approved by City
• Construction: ~$2.5m bank loan (secured by all 3 partners) 
• Timeline: 10-12 months construction, pre-sell 2 to de-risk loan (not a bank requirement), pre-sale others if psf @ or above market rates. Note: 6 months have already gone into land acquisition, demo of old structure, temp utilities, city permits, etc. 
• Profit: to be split based on ownership %'s listed above

The question: Partner A will handle most of the day-to-day in working with the GC, the city, architect, some finishes purchasing/deal hunting, utilities, realtors, and buyers (trying to limit to customization....!). What sort of development fee is appropriate for Partner A to charge the project from their other company for the development work?

Bonus question: what other deal structures could we have considered? Too late now but interested in any feedback. 

What other info can I provide? 

Thanks! 

3-5% of total project cost including land is standard for a smaller project like this.

Hard to advise on deal structure without knowing who found and is leading the deal,  capital contributions, partners roles and goals etc. but generally pari passu is best with active members being compensated for time, travel and overhead.