What Fees Are Reasonable For Commercial Development
I have co-developed two office/warehouses in the Central Florida area. Both are 100% leased and occupied. I need to attract investors for the next development. Can anyone suggest what developers fees or ownership interest are reasonable if I do the site selection, construcion, lease up and management?
It is all about the initial ROI and how fast they can get there initial investment back into play. The opportunities that have moved the fastest usually give them there initial investment back within 3-6 months.
As far as percentage of the investment is concerned, amount they put in, should equal finished buildings worth. As a developer you know that you can build it cheaper than its worth after completion. to make it attractive split the extra equity 50/50 with the investors. That coupled with the money you will make for building it, should set you up nicely and give your backers a nice return.
Once they have worked with you, use them again for larger and longer projects, as you will know exactly what they have to invest.
Exact percentages I couldnt tell you, each investor expects different return/risk ratios.
Good Luck,
Kyle
Thank you for the response. The investors in this development should receive their money back in four years at best or six years at worst. This equates to a 25% to 17% rate of return without any consideration for the tax benefits or consideration for the reversion.
I have offered to subordinate my equity percentage until the investor receives 100% of his cash back in exchange for a 50/50 deal. In this scenario the investor receives 100% of the cash flow.
Since I am the developer and not the contractor I will not be earning any contractors fees. The developer fees are $2 psf and the management and leasing fees are standard for the industry.
Because the construction is CBS with a standing seam metal roof, and not a “metal building,” the cost of construction will equal the value. The sacrifice for return up front will be rewarded with lower maintenance fees and higher returns later.
Please explain what “extra equity” is.