All Forum Posts by: Anders Jax

Well it''s not valuable to me, it's valuable to the sponsor.  

Do I need to actually disclose my compensation to the LP, if I'm paid out of the GP share?

I'm doing way too much work, for just doing it to help. It's been drawing up powerpoints, putting together models, negotiating deal terms, calling in favors, etc.

My value to this is definitely in equal to the efforts of the sponsor in spotting the deals, and executing them.  I would think that it would be reasonable to ask for 25% of the GP promote.

@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.

@Ronald Rohde

Its just not a typical deal for any of us.

The firm will probably go from doing $10m this year in equity, to probably $40m a year in 2 years.

It would seem that I should probably get some piece of that, as this relationship would definitely not exist if not for me. They could be getting $100m of funding a year in 6-7 years.

Maybe my tail is too aggressive, but Id think that a tail of 3 years, declining from full fee to zero every month after a year, would be fair.

@Joel Owens

Well I think its to protect against the firm raising say $5m from the new funding partner, then getting rid of the asset raiser, then raising $50m 6 months later from the firm and paying no fees on that.

Its real estate so it would be multiple years of funding. The asset raising partner should only get paid for the first deal? That wouldn’t be indicative of their value added

So if my firm hired someone to raise equity for us, and of course they wanted compensation based mainly on how much equity they could raise us, what would you think is fair breakdown (yes this is legal, I've consulted with a lawyer).

They were proposing 5% of first $5m, 4% of next $5M, and 3% there-after.  And all the relationships that they bring in, they get those same percentages if more money is raised from those contacts, for 3 years after termination or voluntary departure.

What do you think??

@Joel Owens

Thanks.

All fair points.

Well I am looking for equity that is willing to stay in from day 1 through to project completion and stabilization. It would be too hard for me to raise it in stages where I may not be able to find new investors and the existing investors and deal get crushed.

It is very much projects that encompass finding land, getting permitting to developing the hotels. So maybe this needs to command a higher target LP irr than even normal opportunistic? I was saying LPs should be targeting and probably will be targeting 20%. They were saying “they should be looking for 10-12%.” Wayyy off.

If any of you happen to have any deal term sheets, and could share with me (blank out any sensitive information if you need to) and investor proposal powerpoints, please do inbox me and Ill send you my email address.

I think their sophistication level is at amateur and to deal with these LPs it needs to be at high level professional.

They’ve had success with single and small multi-fam short term rental properties, but they haven’t bought land to develop into luxury hotels or managed a property of the size they are trying to develop. Thats operational risk that commands a premium. They have less than a decade of experience, that commands a risk premium. The market is ominous right now... risk premium. I wouldn’t be surprised if LPs would shoot for north of 20% IRRs given risks.

As well, what do you find more standard, annual waterfall calculation and distribution, or LPs paid back their investment in full first, then waterfall distribution occurs?

@Brent Shields

Could you please give me an example of what would seem fair and clear to you?

And an example of what would seem odd and unreasonable to you?

@John Fortes

I did say “if you can support your structure with market based comps and evidence Im willing to talk about that. Or your assertion that they should be targeting 10-12% IRRs for opportunistic development real estate projects. Because everything I come across runs in contradiction to your proposal.”

That’s exactly what Im thinking of. First and foremost my investor friends, secondly, how bad it would make me look to propose a whacky deal to them.

P.S. LFGGGGGGG PATS!

@John Fortes

Im setting up a GP friend with some LP friends. So my reputation is in the middle here. And I want everyone to get a good deal. And I hounded the GP to propose terms sooner rather than trying to leave it to the end. Then they come out with some wild structure like

7% pref

7-11% 50/50

11-17% 75/25 in GP favor

+17%- 90/10 in GP favor

In order to hit a 20% target IRR for an opportunistic new build hotel, the property would need to cash flow $700k a year on a $1m investment (pffff) then sell for $8.8m net of debt at the end of 6 years.

I am trying to talk them off this structure, because they will not find a sane investor to take that. And we could all make a killing, but I will never propose that structure to an LP.