Hey Kenneth!
Everyone in this thread is making great points. I specifically want to expand on Chris's point by discussing capital risk buckets, which help set a target return range for IRR.
At my company, they are as follows:
Core: Lowest risk, Class A product, in Central Business Districts, ranging from 7-10%+ levered IRR (since you're in development, I assume this is most of the asset class you handle).
Core Plus: Still low risk, strong location with potential upside, 10-13% levered IRR.
Value Add: Medium-high risk, Class B+ or B-, mediocre to strong location with operational or physical upside, 13-15% levered IRR.
Opportunistic: Highest risk, major upside potential, varying locations, 15-20% levered IRR.
As for the GP/LP split on promoted interest, GPs can choose an aggressive split, but the decision should be strategic and consider the preferences and risk tolerances of potential investors. A balanced approach that aligns the interests of both parties is often the most sustainable and attractive to LPs
However, please note that I don’t have experience working in syndications for ground-up constructions and am not well versed in the NC Market, so my perspective might be off. I recommend conducting additional market research to ensure these targets are competitive and appealing under current market conditions. I hope this provided at least a bit more context to the discussion.
All the best,
Diego Andres Curbelo