Wealth Opportunities in Commercial Real Estate: Management, Financing, and Marketing of Investment Properties

Fifteen Key Structuring Issues

There are several key issues that must be addressed in formulating the venture's structure. These issues include:

1. Capital Contribution. Historically, the money partner puts up 75 to 90 percent of the capital needed and, conversely, the entrepreneurial side invests 25 to 10 percent of the needed cash. This is a negotiated item. The money partner wants to ensure that the entrepreneurial players have enough at stake so that not only are their hearts and souls committed to the success of the project, but also that their pocketbooks are at risk. A point of discussion might center around whether or not the entrepreneurial partners may syndicate their cash investment; or to restate this issue: is there a minimum dollar amount that the active partners must invest from their own funds? There is no right answer to this question. Some money partners do not care; money is money. However, other investors block any other party from investing under the theory that they only want to work with a small group of people whom they know and trust.
2. Management Fee. The day-to-day running of the real estate should be conducted by an experienced property manager. This function can and is usually performed by the individual or group that puts the transaction together. A standard management fee is 3 to 5 percent of the gross income, or 15 percent of operating expenses. If the promoter delegates the management function, a smaller asset management fee is often charged.
3. Preferential ...