Structuring LLC and upside with multiple parties

[Libby Tucker]

I'm looking to nail down a good deal structure for my situation. After a ton of research it seems that it just comes down to a case by case basis. So, here's my case:

I have a co-living business. I'm looking for properties (ideally slightly distressed and currently in South Bronx and East Brooklyn in case anyone knows of any).

At the moment I have little to no capital to invest.

An investment group approached me about going in together on the next property. They are experienced deal finders who generally seek outside capital and focus on getting great returns for their investors.    

Together we have identified a property that will cost all in purchase + closing costs $800k.

• NOI $77,129
• Cap Rate 9.64%

The average cap rate for the area is 4%.

Built into the expenses are all utilities, amenities, plus an on-site management fee. I have not yet built in my cost.

My Value:

Property management and general construction expertise

A large network of high value tenants with the ability to fill spaces quickly

Ability to get above-market rents

Manager on-site to maintain high value community

Hands on management with track record

Their Value:

Outside capital

Experience with the Department of Buildings, including building codes and permits, and removing violations

Track record with local lenders

So... 

How do we make this a win-win, or, in the case of also satisfying their investors a win-win-win? 

Considerations:

What happens if something goes wrong on the property / needs repairs

Who is liable if we get sued

What if we need more cash to infuse into the business for whatever purpose

What if someone wants out of the contract

This particular group of investors want a promote from their investors along with, I believe, a property acquisition fee and an annual fee.

It's my understanding that normally you structure an LLC for 2 parties - investors (Limited Partner) and sponsor (General partner) and the GP gets the promote.

Would I ask to be part of the LLC structure as a GP of this group? Or, would I be a 3rd party and ask for a secondary promote?

This group, obviously, wants to share in the upside of higher market rents. Because I do not have initial upfront capital to invest, I want to offer a fair split of the net. I also need to make some money to prove the model, be able to survive, and to recruit more partners for more deals.

Also, I’m a real estate investor. Aside from my business, I want to grow my portfolio.

Questions:

How should the LLC(s) be structured? 1 on the property and 1 on the business, plus an additional 1 to represent 3 parties separately? Or do I group in with the investment group as a GP?

What is a fair equity split on the property?

What is a fair split of the net revenues?

Could there be goals or milestones for which the profits and/or equity are increased for any or all parties?

How can all parties not investing capital benefit from a promote / sponsor fee?

I also am building a network of private equity partners and lenders. In the near future, it seems like it would be less messy to go that route / work directly with private money and then a lender.

Should I work with private investors directly and skip this deal? The benefits of this structure are that, even though I get less upfront, I get to expand my concept and my track record.

Sorry for the long post. Helping point in any direction, and any introductions, will be very helpful, as the more I read, the more lost I get and I want to clarify before I pay expense attorney fees. 

Thank you.