Today we are continuing our series on syndication. Today’s topic is fees. The fees that syndication typically has. We will go through some of those fees, the profits and how those align for the sponsors.
These fees include:
Acquisition fee – Typically 1-3% of the purchase price or the asset, often called the “keeping the lights on fee” because it goes to the sponsor. This is due at closing.
Asset management fee – The fee that the sponsor charges to optimize the asset. Typically 1-3% of the revenues of that asset monthly or quarterly. This fee can be deferred.
Splits – Profit splits – Typically we see a 70/30 split. 70 percent to the limited partner, 30% to the general partner, which comes after the fees and after what we call a preferred return. A preferred return means that 7-8% is paid 100% to the limited partner.
Loan Guarantee fee – One of the sponsors is putting up their net worth statement and guaranteeing some liquidity of their assets to guarantee the loan. For that, they want some compensation, typically 1% and is a one time fee due at closing.
Disposition fee – Typically 1% is more optional and is due at closing.
When you are looking at investments, the good operators out there show you numbers that take these fees into consideration.
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