All Forum Posts by: Anders Jax

Using it for setting up some investors for a friends real estate acquisition and management business.

The income statement he gave me to calculate investor returns from lacked depreciation and corporate taxes.

Nobody for instance investing in telecom companies, says whats my IRR on EBITDA? We are talking cash flows right? So where does depreciation and corporate taxes get accounted for, because on the model I got from this Udemy real estate course, there's no depreciation and corporate taxes either. They obviously get factored in somewhere, and in every other business that's the income statement... so what am I missing here?

So when I google Real Estate Income Statement, none of them have depreciation or taxes on the them, like a normally company would.

So where the heck is this factored in? 

Is there is a typical LP/GP structure, with an LLC owning the equity in the property, doesn't the property get depreciation deducted on the income statement, and then there's pre-tax income, then that's taxed at the corporate rate, and then after adjusting for capex, net free cash flow is available for distribution to the partners?

Or is the depreciation and taxes passed through to the partners of the LLC?!?

For the life of me, coming from corporate finance, I don't get why all these models and income statements I'm seeing don't have depreciation or taxes (other than property taxes) listed, like every other business does...

So let's say the LP puts in 100% of the equity, for simplicity sake.  

And let's say the asset performs really well, and LP IRR is around 18%, a great return. However, it's at an 8% preferred, 70/30 split to an LP 15%irr, and 40/60% split therafter. And because the asset returned 30% IRR on equity, the GP walked away with roughly 45% of the total equity returns.

Would you be comfortable with that at all?  What split is your kind-of bottom line that you say hey your fee, no matter how well you performed for me, is just too large?

As well, have you ever heard of situations where the GP takes a 50% cut on the appreciation of the asset upon sale, instead of just sticking to the normal waterfall/promote structure?

So I've got a group of LP's and we are talking to a GP who also owns a management business.

Their prior bread and butter is in residential short-term rentals, like airbnb type bookings.  They have a great platform no doubt, and drive great results.

However, they are moving into Hotel deals as they offer a scaling-up and efficiency of time and effort, but the management % they are proposing for a real estate deal is 20%... 

Their answer to me when I stated that a normal hotel management fee is 3% is "Those 3% rates don't include the opex of running the hotel like sales, marketing, etc. Our fee is all inclusive." An additional 17% for those functions? Is that reasonable? What would one actually generally pay to a company to handle marketing and sales for a property? Would it be a % of revenue, or some type of negotiated-fee?

In my research I found that hotels spend an average of 8% on marketing/sales.  That's 11% combined.  And I am not sure yet whether this management co is saying that all the marketing spend comes out of their end (included in their 20%) or whether they would charge the business for any advertising buys, etc., further adding to the marketing and sales %.  

How would you generally handle, as a GP, finding and negotiating with a firm to do the marketing and sales?  Because this 20% all-inclusive seems like a huge percentage that isn't properly broken down the way it should be.

Thanks,

Anders