Assuming the potential deal you are analyzing meets your target IRR for investors (net of fees), what's the best way to determine if the deal make sense from a sponsor/developer's perspective? Is it simply making sure that the deal can afford your management fees and carry/profit split (after the pref to investors) and still achieve your target IRR for investors? Should the Sponsor's IRR be calculated based on the sponsor's investment (ex: 10% of capital), which you would expect to be significantly higher than the investor's IRR? Or should you analyze it more like a traditional business to ensure the management fees cover overhead and a salary for you.
It appears the sponsor would rely heavily on management fees (acquisition, loan, prop. mgmt, asset mgmt, etc.) to cover overhead until distributions to investors surpassed the preferred return and a final sale.
Also, I would imagine you need to have multiple projects (or a few large ones) to live off the management fees until the ultimate sale.
Appreciate any feedback. Hopefully my question makes sense...
