All Forum Posts by: Anders Jax

Not sure it's entirely clear which part of the negotiation you're part of. Are you currently part of the GP or part of the LP trying to be a part of the GP? Or are you trying to get 25% of the GP for bringing the LP investor? Some clarity would help me answer your question.

Thanks,

Good question. I am currently part of the GP, retained to raise equity. I am trying to get 25% of the GP's waterfall cash flows, i.e. the asset management fee, and the promote.

Thanks.

1 Vote

The GP is just two guys and myself, who put to work about $5-10m in equity a year. I may be able to bring an LP who is willing to commit essentially more capital than we could possibly put to use with the size of the projects, and would allow the GP to deploy probably $30-$40m a year if the opportunities could be found. I haven't yet finalized my compensation structure with the GP, and I have done some sensitivity tables of what I would earn based on potential IRR's of the project. I could obviously get basically nothing if the GP screws up with the operations, or the market turns sour, and we don't earn our promote (but would earn part of the 1% asset management fee). So I think the added risk is worth tacking on 10 points, rather than taking 15% of the GP, which would probably put me in line with an otherwise 4% asset raise fee.

But I've taken a ton of meetings, done a lot of work on the presentations, gotten some great interested parties, and the GP is unwilling to settle our end of the contract (and I think would be very dumb to not do so) right now. We are halting discussions until we can come to an agreement on our end. I think for the amount of work I'm doing, the risk I am taking by not taking cash compensation, additional risk I am taking by not being in the LP box, but rather taking a share of the GP, 25% is not unreasonable. In terms of the value I'm bringing, it's probably half the value, and in terms of the amount of work, it will probably be 15-20% as much work as the investment team does. Then again, they will be compensated outside of me for a lot of that work, acquisitions and disposition fees, development fees, etc.

What do you think?

2 Votes

Originally posted by @Steeve Breton:

@Kevin Nguyen I actually met the sponsors (Three Pillars) of this deal at a meetup in Boston a couple of weeks ago and had a call with them to dig into the details. They are looking for a few KPs to help with Net Worth and Liquidity. They personally have little experience but do have a friend/relative with investment and property management experience so they won't need your involvement there. I did my own underwriting of the deal itself, using the rent role and actual expenses, and it is solid. Could be a great success. My concerns were threefold:

1. At the time they were planning on using a recourse loan. If the deal goes south for any reason the bank will come after any/all KPs looking for the full $6mm. I have too much to lose. At first they were pretty flippant about this concern but softened when I explained that both of my mentors told me they'd never get their investors to sign on a recourse loan.

2. Sponsor's compensation is heavily fee based. It is also font loaded. This does not align well with investors and the long term success/profitability of the project.

3. KPs would not be adequately compensated for the risk.

I told them if they can correct these 3 issues I'd consider signing on as a KP. I wouldn't say "stay away" but certainly "buyer beware" on this sort of thing. As with all things in this space, you have to do diligence and then decide for yourself if the risk/reward is worth it.

What do you charge for being a key principal?

1 Vote

I’ve read that sometimes LPs are the ones to guarantee or split the guarantee at least 50/50 with GP.

How often does that actually happen? I’d think LP would be very reluctant to do so, and want larger share of profits for doing so.

0 Votes

Originally posted by @Brandon Hicks:

@Anders Jax

I’m confused...

In your opening post you state that your firm is hiring someone to raise funds...implying that this is a different person other than yourself.

Every other comment makes it sounds as if it is you.

That said, I believe it is very common for fund raisers to get a slice of the GP based on the amount of money they raise on a per deal basis.

I was hired for consulting work, and then they realized I could probably raise the money with the contacts I have.

Yeah, I was thinking to ask for 15% of the GP, which would roughly equate to 4% of the LP's stake (seems like a fair % of capital raised), depending on what returns are achieved and the promote structure.

1 Vote

@Anders Jax

If I get a piece of the GP for deals I raise assets on, is that not legal?

0 Votes

Originally posted by @Ronald Rohde:

Originally posted by @Anders Jax:

@Ronald Rohde

Billing them hourly just isn’t something Im interested in. Neither is a realtor selling a house in Beverly Hills.

Im just not interested in billing $40k and delivering $100m in equity in exchange for it.

Im looking for a way to structure this responsibly, and be compensated fairly.

Goldman isn’t taking $500k to raise $1B in bonds for a company, because that company needs goldman to do it, and its worth it for them to pay 4% fees for it.

So I appreciate the thoughts, but anything where I’m not getting a piece of the cash flows, is something I have no interest in.

Cheers

I'll disagree on your BH example. Many Buyers in California are hiring lawyers to represent them and paying hourly. If I charge my rack rate, I don't need to demand a percentage of the sales price.

Back to your problem, I have no doubt you're providing value--there is no way to get compensated the way you want without getting licensed. I'm happy to draft a contract, but don't waste your time bringing people together unless you know why you're doing it.

Sounds like there's some smart buyers in Cali, but how would that reduce the cost of the broker? If it was sellers hiring lawyers, I'd get it, but the seller pays the realtor full fees regardless of whether a buyer's broker was used or not, I thought.

Well certainly I am doing it for my own economic benefit. The GP needs capital, I can raise it for them, and I'd like to be compensated in accordance with the value I'm creating for them. I don't understand why I can't execute this... if I were a full-time employee there, and they staffed me with raising assets, and gave me a bonus based on the assets I raise, that would be legal, correct? I have made it clear I am not a broker, just a consultant helping to find investors.

0 Votes

@Ronald Rohde

Billing them hourly just isn’t something Im interested in. Neither is a realtor selling a house in Beverly Hills.

Im just not interested in billing $40k and delivering $100m in equity in exchange for it.

Im looking for a way to structure this responsibly, and be compensated fairly.

Goldman isn’t taking $500k to raise $1B in bonds for a company, because that company needs goldman to do it, and its worth it for them to pay 4% fees for it.

So I appreciate the thoughts, but anything where I’m not getting a piece of the cash flows, is something I have no interest in.

Cheers

0 Votes

Originally posted by @Jay Hinrichs:

Originally posted by @Ronald Rohde:

Originally posted by @Anders Jax:

@Ronald Rohde

The developer has amazing returns but they are going for projects 10x the size of their normal single family ones of the past, so they arent holding the stronger hand in terms of risk and need. The institution I’d raise them money from could commit hundreds of millions to a firm that has probably raised $15m total in last 5 years.

So i'll tell you that your introduction, while valuable to you, will likely cut you out given the key players size and experience. Even if you sign a written agreement, they won't pay. Which means you have to sue, they will defend and claim a lot of unlicensed securities brokering, etc. Threats of criminal enforcement, etc.

Introduce them because you want to help, but you're not in a legally strong position to collect fees.

so true.. play with the big boys in securities deals and get cut out.. thats my first thought would the OP be best to just bill as an accountant by the hour for services rendered which is accounting services. ?

Well I think I'm covered if I am made a partner in the firm and only take a set % of the GP promote. Does that sound unreasonable? I am bringing these guys tremendous value that they can't get for themselves...

0 Votes

All Forum Posts by: Anders Jax

Anders Jax has started 18 posts and replied 64 times.

Post: Asking for 25% of GP equity for doing the fundraising?

Post: Asking for 25% of GP equity for doing the fundraising?

Post: Asking for 25% of GP equity for doing the fundraising?

Post: Key Prinicipal - what exactly is it?

Post: How often do LPs guarantee the loan in a JV?

Post: % to pay a dedicated equity raising partner?

Post: % to pay a dedicated equity raising partner?

Post: % to pay a dedicated equity raising partner?

Post: % to pay a dedicated equity raising partner?

Post: % to pay a dedicated equity raising partner?