Deal Analysis: Partnership with Developer

[Rob Nichols]

BP Gurus! 

A small developer I know has proposed a partnership that's pretty intriguing but I'd appreciate some opinions on it. 

The developer owns free & clear land within a few miles of a big university.  He's proposing building a 12 unit multifamily (all 1 bed/1 bath).   He would provide the land and $150K in cash toward building the property.  I would provide approximately $350K of financing through a commercial loan.   He's proposing I would receive 20% of net profit from the rental income as well as 20% of the property value (minus land value).  Below are some more details with the rough numbers:

12 (1 bed/1 bath units

Value of Land:  ~$150K

Cost to Build:  ~$500K

Rent is expected to be $700-$750/unit ($8400-9000 month)

Vacancy, management, expenses, CAPEX, etc: ~$4100/month

NOI: $4,300 to $4,900

Monthly Note ($350K, 20 yr AM, 5%):  $2,309

Monthly Profit:  ~ $2,000 to ~2,600

Annual Profit:  ~$24K to ~31K

Value of property (low end estimate on an 8% CAP: $645K to $735K)

Average CAP rate for new builds in local area is ~6% CAP.

My 20% Ownership of Annual Receivables:  $4,800 to $6240

Additionally, I would receive 20% of the property value (minus land) (which would vary depending on CAP rate but in the range of ~$100K to $117K.

The developer has a great reputation, has been in business for 13 years, and has built dozens of SFH's and MFH's in the area. The above numbers are rough and will be fine-tuned but the main question is, assuming the numbers meet our criteria, what's a fair way to split the partnership interest?

He's providing the land, ~$150K in cash, the design, and oversight as the general contractor.  I'm only providing the ability to finance the build and should not be coming out of pocket on much other than the closing costs.  The proposed 20% of annual profit and 20% property value sounds like a good deal, given the limited value I'm bringing to the deal.  Is 20% more than generous?  Or is a different % more appropriate?  What value would you put on my involvement? 

Any suggestions or opinions on this arrangement would be really appreciated! 

Thanks!

Rob

[Rob Nichols]

@Joshua S. thanks for a suggested counter-proposal.  If he's putting in $150K cash, plus the value of the land (~$150K) and I'm supplying access to the loan ($350K) then the total value would be ~$650K for a built property.   In that case, I'd be providing about 54% of the funding/capital required.  However, he'd be doing all the work managing the build and would have $300K of his capital tied up into the property while I'm not out of pocket on anything.   I'd be comfortable getting less than 50% of the deal, but am not sure how exactly to value what percentage it should be.  

Anyway, thank you gentlemen for taking the time to weigh in; much appreciated.