You want to put a syndication or
a fund together? Well, you

probably want to get paid for
the work you're doing right. So

in this video, we're going to
talk about the different fees

and split structures that exist.
But we're also going to talk

about why I think it's important
to separate the two and your

thought process.

When we think about fees, I
think the most important thing

is think about it like your pay,
it's the pay that you get for

the actual work that you're
doing. So that pay itself should

needs to be commensurate with
not only the amount of work that

it's involved, but also your
experience level and time spent

away. Now, if you were doing all
the accounting, you should get

paid for that. In here, you're
oftentimes doing different

things like the asset
management, or you're putting

together the acquisition or
disposition of specific assets.

So you need to be compensated
for those. So let's go through

the basic fees that I see in
most of my structures. And in

this case, we're going to really
probably be talking more about

real estate fees, just because
in a real estate syndication

context, because that's more
commonly seen as having the more

amount of fees. So let's talk
about those. So the first type

of fee is, of course, an asset
management fee. When we talk

about asset management, that is
the fee that you should be

earning for the work that you're
doing in order to keep the asset

itself managed, or the assets
managed. So it's keeping that

fun to go in. This is things
like investor relations, it's

things like the backend
accounting before you hand it

off to an accountant. It's the
keeping the day to day keeping

an eye on the market, making
sure that when's a good time to

start disposing of these assets.
Those are typically the thought

process behind asset management
fees. Now, the percentages of

that we that syndicators and
fund managers typically charged

for asset management fees ranges
from about one to 2%. But the

question really becomes one to
2% of what so that what most of

the time is the amount of money
of that have been raised from

the investors. So it's that
capital accounts, that is

typically used, some people
prefer to use gross income,

other people even use net
operating income, those

obviously would be lower amounts
of fees. And the reasoning is

because they don't want to be
charging excess fees, they may

be making their money elsewhere,
like in the splits, which we'll

talk about in a little bit.
Besides the asset management

fee, a lot of developers
developers of real estate will

charge a development supervision
fee. And this is different than

a developer's fee, like the
regular fee to actually be doing

the development itself. But it's
that relationship between the

syndication or the fund itself,
with the developer that's being

covered here. A lot of times
that supervision fee is around

10% 10% of hard and soft costs
as they're incurred. That's just

a general ballpark that I see
probably more often than not.

Another type of fee that we
oftentimes see is property

management fees. Now a lot of
people will put their property

management out to a third party.
And that's definitely a good

idea because your your specialty
is, in this case, in the fund or

in the property or in the asset
management itself for the

syndication. Now, if you own a
property management company,

you're obviously going to keep
that yourself and be earning

those fees. Also, it's worth
thinking about, maybe you want

to keep the property management
itself, if it's something like a

triple that property where
there's actually not that much

property management that goes
on, and you may be able to pass

that off to the lessor of the
property. And so I mean, the

lessees of the property itself.
So to property management, it's

still a fee, and so it still is
part of what I consider part of

the fees, whether you're keeping
it that we certainly put it in

there, or if you're not keeping
it will probably just make

reference that it's being paid
to a third party. Another type

of fee would be the acquisition
fee or disposition fee.

Acquisition and disposition fees
are typically around 1% One and

a half percent of the purchase
or sale price of the asset. This

is for all the work that puts
that goes into actually

acquiring or disposing of the
asset. So gathering due

diligence material, reviewing
all those things, that takes a

lot of time and it should be
compensated for that. Lastly, a

the nor No Fee category would be
real estate agent fees, real

estate agent fees I put here,
even though probably if you're

doing a real estate deal itself,
those are getting paid anyway.

But if you as a sponsor are
getting paid those fees, it

needs to be discussed. And this
is just the best place to put it

when we're talking about
management fees. The reason we

need to disclose it is not only
because because it's a fee

there, but it's also represents
a conflict of interest, it is

possible and a lot of times
we'll disclose that, it's that

it's reasonable to believe that
maybe the sales price could have

been higher, if it wasn't being
represented by somebody who also

had the split loyalty, or the
purchase price might have been

lower. It's not It's definitely
not the case all the time. But

we'd like to put it in there
just so that we've made it very

clear that there is a conflict
of interest. But we've now

disclosed it, there's a few
other kinds of fees that are

less common than the fees we
just talked about. That would

include like a finance fee. So
the fee associated with putting

a loan together and making sure
the financing is there, that fee

is generally somewhere between
half a percent to as high as a

point and a half for the amount
of for that work. And it's all

based on the amount of the load
that's being got not on any

other parts. Another kind of fee
that happens from time to time

as a marketing fee. A lot of
times you'll see this if a

broker dealer is involved,
because you'll have a marketing

fee as well, which is the cost
of putting all the material

together for the broker dealer
so that they can do their work

and finding investors. Lastly
would be like a startup fee. So

startup costs, so this is
normally a reimbursable expense

anyway, those costs, but the
startup fee itself is for the

work of putting together the
syndication itself. And that

that body of work, it's not very
common. And normally, if it's

there, it's somewhere between
one or 2% of the total amount

that's raised, but it's not that
common. Now, so fees in general

should be thought of as your
income, it's probably being

taxed as income for you. So as
you begin earning these fees,

it's probably paid out upon
receipt of completing the work.

So the IRS was going to say it's
income, and it's probably is

counted as such, different than
fees is splits. So the splits we

can think about as the profit
part. So you have you regular

income. But the other piece of
the puzzle is the profit that

you're making, from having done
all this work. So it's not the

income side, but it's that
profit piece, a lot of times,

and you should definitely speak
with your accountant about this

and make sure that it's kosher.
But a lot of times, what we'll

do is, is Pete is syndicators
will put those put those splits

in on the the capital gains side
of their returns that have a

lower tax rate. Now, they need
to basically have invested money

and have money at risk in order
to be doing that. But again,

talk with your accountant and
see if this is an avenue that's

available to you. Because you
can save a lot of money and

you'll make more money that will
be in your pocket at the end of

the day. There's three kinds of
basic splits that are out there

in the world. And so the first
one that's definitely the most

common would be a waterfall
split with or without a

preferred return. So the
preferred return is that

percentage that you're
guaranteed gets paid to the

investor before any other
distribution of profits can

split out. So they get their
money back and they get any sort

of profit they get whatever that
preferred return is as that

first in line, there may or may
not be a catch up for the

manager, but that's not really
relevant to this conversation.

Other videos talk about that
that I've put out. So that

waterfall that has the preferred
may or may not have a preferred

return, it may or may not have a
catch up. And then at that at

some point, it will have a split
like you oftentimes hear about

80/20 or 70/30. Those are the
splits. Typically it's about 70%

or 80% or 60%, or whatever that
percentage is goes to the

investor and the remainder goes
to the sponsor. That's not

always the case. It always
depends on how the whole

financial structures but setup
I've done deals where only 10%

of the profits go to the
investors where 90% goes to the

sponsors because they've given
the the investors so much reward

as part of a preferred return or
something like that. That they

Want to make it something
marketable, that would still,

you know, basically still be
investable, but still make a lot

of money for themselves as well.

The next kind would be straight
equity. So you've got a

property, you're buying it for 5
million, but the reality is that

you're actually buying it for
4,500,000. And you're charging

to your investors it as if it
was a 5 million property, you're

taking 10% off for your own
equity. So you're keeping 10% of

the deal. And they're getting
the other part, I call this

straight equity. The reason or
sponsors equity is another name,

I use it sometimes for the
reason why this is a great deal

for you is you're guaranteed
you're gonna get paid. So if the

property gets sells, even if it
sells for 3 million, you're

gonna get that 10% of that 3
million, you're gonna get that

$300,000 Payday even if it goes
under market. So it works out

very well for sponsors.
Individual investors may or may

not like it, they may object or
have questions to it. And if

your deal works for it, great.
If it doesn't, then you know,

you probably should choose some
other avenue. The third kind is

what I call a harvest per boat.
And this is actually pretty

rare, but I think it's important
to talk about because it is out

there in the world. A harvest
promote says, Okay, we're gonna

sell the property, or sell all
the assets at year five, or

whatever that time is, once
we've sold, we're going to

return all the money to
investors, once investors have

been getting paid back, at that
point, the sponsor is going to

take the first 10% of profits
for themselves. And then the

rest will be given out either as
a split or given out as straight

to the investors. So that way
the, the sponsor is as long as

it's profitable, is going to be
making good money on it. But it

put it puts the relief on the
side of the investor that, hey,

at least I know I'm gonna get my
money back before the sponsor

makes any money. So those are
the general types of splits now

splits again, think about those
as the profit center. So that's

you profiting from it, not the
regular pay that you receive for

day to day work. So I hope you
found this video helpful,

because what we're trying to do
here is we're trying to talk

about these two categories that
are going on splits and fees.

Now, many, many people come to
me every day and asked me about

this, or what sort of split
Should I have? Or what sort of

fees should I be charging? And
the answer is, well, let's look

at your numbers. Let's see what
you're doing. When I get hired,

most of the time I go through in
detail the financial picture of

it, I don't give up my opinion
as to where I think they're out

in the market. If I think that
they're charging a lot of money

in terms of fees against
investors, I'll let my clients

know that because I want their
product to be marketable at the

end of the day doesn't do
anybody any good if it doesn't,

if they can't get investors out
there. So but I also want my

investor, my sponsors and my
fund managers to make as much

money as possible. So many, many
times, I'll go through what

those numbers are. And we'll
talk about, well, maybe if we

tweak this, or maybe if we
change this, we'll get a better

return that will be more
marketable. Because really, at

the end of the day, your
investors care not only about

what the story is about it,
which I do believe is probably

the most important thing that
you're you have to sell them.

But the second most important
thing is that number of what

that return is because they need
to understand what it is if it's

if it's an 8% return or a 20%
return whatever it is, if it's

something that they're
interested in, they're going to

invest. So ultimately, we want
to end up with a good solid

return that they can rationally
believe in so that they can then

buy into your story and be a
part of your vision that you've

got as your syndication or fund
takes off. My name is Tilden

Moschetti. I am a syndication
attorney with the Moschetti

Syndication Law Group. If we can
help you please don't hesitate

to give us a call.