Fees on Fees on Fees - Syndication Deal

[Mark S.]

Currently evaluating a multi-family syndication deal.  From a quick review so far (assume that the numbers check out, the operator has been vetted, etc.), here is the deal structure / fee structure:

85% / 15% cash flow split (investors/syndicator) - no preferred return
3% PM fee (100+ units) - seems low
4.9% acquisition fee
1.9% capital raise fee - never heard of this one before
0.35% asset management fee - ongoing fee each year
85% / 15% profit split on back end (investors/syndicator)
I did not see anything regarding a disposition fee, but wouldn't be surprised if there was one.

This just seems like a lot of layers of fees (acquisition + capital raise + asset management).  Am I wrong?  What am I missing?

[Ben Leybovich]

Pref: Do not do anything without a pref. Period.

3% PM Fee: This ranges from 3% - 5%. I pay 3%.

Acquisition Fee: Too high. I charge two fees. Acquisition fee and Finance fee. Both combined are under 5%.

Capital Fee: Never heard anyone using this.

.35% Management Fee: Too low. Typically, depending on the size of the asset, this is 1% - 2%.

Split: 15% is not enough to incentivize the sponsor. Especially on an 100-unit deals. This really should be 70/30. The important perspective is that in this case, the sponsor is charging too much in fees up-front, too little to oversee the project and much too little on the back. This can mean that either the deal is not good enough to get the sponsor 30% on the back and still pencil for the investors, or the sponsor simply wants all of the money upfront, which is not cool. What's going to keep his head in the game if he can't make any money on the back...