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Agreement on Equity in Real Estate Partnerships

With Percy Nikora, Co-Founder

So, when it comes to some common challenges, one of them is related to the equity splits. So let's say if you are purchasing an office building or some property with a few of your friends and investing in the deal. One common challenge is, and I've had this experience myself, is coming up with an agreement on what the equity splits should be. And even though people in the beginning may say, oh, yeah, we'll split it equally as time goes on, maybe they don't put in the same level of effort or investment that may be needed. So, you know, that's always a bit of a challenge to navigate vs. in a syndication or in a fund, all of those terms are defined right up front. And the typical structure that is followed, is that there's something, they're hurdles, where as the fund performs or the investment performs at a particular level, that's when the sponsor gets their, what's called "promoter", their share of the equity. So, the way we structure our deals are, the investors get a preferred return. That means the 100% of that initial return, whether it's 8%, 10% goes to the investors, the sponsors don't get any any part of that profit. After that, once that hurdle is met, that's when it starts to be split. And we've had fairly generous splits. We offer our investors up to 80% of the equity. So an 80% of the profit would go to the investors, 20% would then go to the sponsors until you hit a pretty good threshold, something like a 17% IRR, and there may be, you know, an additional split. But, in general, the investors in our deal structure gets a majority of the profits.

 

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