Negotiating Equity shares with GC

[Ray Hayward]

Hello,

I am seeking feedback and advice on how to fairly negotiate equity with a GC for a specific project.  My role is the Developer. 

My goal is to:

1) Make an equity offer to GC based on Fair Market Value of property
2) Determine Retail Cost of Construction vs. GC's offer to determine "Sweat Equity" value
2) Create Vesting/Cliff schedule based on Timeline and Milestone

The way I believe I/we could fairly establish "Sweat Equity" is by getting 3-5 3rd party GC quotes and establishing the retail cost of construction. Then, determine equity based on discounted rate of retail average cost from obtained estimates.

Then, equity shares would be based on executing timeline and budget milestones.

For example: if the offer was for 35% equity, perhaps the vesting schedule would be:

Milestone 1: Site demo and clean up, passes inspection, on schedule, within budget 5%
Milestone 2: Rough construction complete, passes inspection, on schedule, within budget 5%
Milestone 3: Finish construction complete, passes inspection, on schedule, within budget 5%
Milestone 4: Exterior landscaping, paving, and clean up is complete, on schedule, within budget 5%
Milestone 5: Etc.

Can any provide feedback and opinion of this structure?

What is typically a fair offer to a GC in terms of equity share? (10, 15, 30%?)

Also, could someone suggest realistic project milestones that should be used as triggers?

[Troy Sheets]

Not sure why'd you'd cross contaminate (for lack of a better phrase) between owner (equity) and GC and make milestones and waterfalls and generally make everything more complicated? If you have the deal and the financing, a GC is just a commodity. Also, take this scenario you just made up with vesting and waterfalls and milestones and put it in front of a judge and jury when the GC fails to perform. The GC is now an owner, even if all he does is show up on day one and drop some 2x4's off, and he's likely got an equity stake in the eyes of a sympathetic jury.