Equity Partner

[James G.]

Regarding private equity partners. I've made several RE flip investments individually and with partners. I've worked with investors in the past on a 50/50 basis in which I provided the knowledge and sweat equity while the partners provided all the equity. I'm curious what creative partnership structures (i.e. Equity partner compensation plans) BP investors are using for fix and flip projects; specifically, when you are personally providing +/- 50% of the equity, sourcing the property, managing the construction, and selling the property while a partner is equity only (+/-50%).

[Jonathan Twombly]

My firm, Two Bridges Asset Management LLC, deals in assets in the $3-10mm range, requiring $1-3mm in equity. In our structure, the investors put up 100% of the equity, but when you are dealing in those kinds of amounts, they are not very happy with a 50/50 split. We structure the deals to provide a 1% asset management fee on the equity (which should be increasing over the holding period) plus 20% of the upside on the deal. This works out to about 23% for us and 77% for the investors over the entire lifetime of the deal. We don't vary the structure, which gives investors certainty, and it is a split that they feel is equitable (and, thus, we hope, will keep them coming back).