Vacation Condos Deal
I am a beginner investor and I was offered a deal from
an experienced developer with very good track record.
The project is vacation condos building constructioin.
We are putting in 100% of acquisition and pre-construction cost (26% of total project loan) in return for 32% profit share in the LLC. They perform the project management (3.5% development fee + management fee + 68% profit share).
We were offered only 19% equity in the LLC (even though we receive 32% of profit). The developer agrument was that if we own more than 20%, then bank will request our guarantees. Is it really so?
Also as a protection measure we and developer agreed that if our profit share turnes out to be less than 12.5% APR on the invested funds, then the developer guarantees to pay 12.5% APR instead of the profit share.
Please, comment on this arrangement.
What do you think would be a fair profit share for this kind of deal?
[ Edited by benefit on Date 02/18/2006 ]
an experienced developer with very good track record.
The project is vacation condos building constructioin.
We are putting in 100% of acquisition and pre-construction cost (26% of total project loan) in return for 32% profit share in the LLC. They perform the project management (3.5% development fee + management fee + 68% profit share).
We were offered only 19% equity in the LLC (even though we receive 32% of profit). The developer agrument was that if we own more than 20%, then bank will request our guarantees. Is it really so?
Also as a protection measure we and developer agreed that if our profit share turnes out to be less than 12.5% APR on the invested funds, then the developer guarantees to pay 12.5% APR instead of the profit share.
Please, comment on this arrangement.
What do you think would be a fair profit share for this kind of deal?
[ Edited by benefit on Date 02/18/2006 ]
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