Optimal Multiparty Venture Structure for SF to Quads

[Anthony Dispenziere]

Hello Fellow BP Buddies,

I work in capital markets for a very large private real estate development company, and my job entails addressing the needs of our various projects from a capitalization perspective (primarily debt or equity, mostly debt). I'm starting to plan for my first foray into the investment space on a personal level. Although I know how JVs work on the development side, I was wondering if anyone had good advice regarding the optimal structure for a multiparty investment vehicle that was focused on acquiring and operating smaller scale assets (namely, single family homes to quads). I have a lot of friends who have available capital they would like to deploy, and I could certainly aggregate and direct that capital productively. In my experience, the typical development deal with partners has an operating partner and one or more passive investors. The operating partner typically invests a smaller percentage of capital and collects a fee and a carry, or in other words, charges a regular ongoing fee to the project for active management and takes a disproportionate share of the profits for returns achieved in excess of an agreed-upon structure of investment rate hurdles (known as a waterfall). Does anyone else have experience in setting up a similar structure in which they aggregated and invested available capital successfully for this purpose? Is a REIT or a fund or a JV partnership structure optimal for this asset class, or is it something else? What is the appropriate and customary payout arrangement? When you're selling product on an ongoing basis, the carry component of the arrangement is highly motivational, but in a buy and hold scenario, I'm not sure how relevant that component is.

Thanks!

Anthony

PS - This is my first post! Very exciting, hope this wasn't addressed elsewhere.