Who Shouldn’t be in Your Asset Management Company?
People who are already providing services for a fee and aren’t providing any of the additional services described below should not be included in your asset management company. If you are already paying someone such as a Realtor, property manager, or contractor, to perform their traditional services for your Syndicate, there is no reason to bring them into your Asset Management company unless they are also performing one or more of the additional Asset Management tasks described below.
How Does the Asset Management Company Get Paid?
The Syndicate Manager (Asset Manager) will earn management fees (such as acquisition fees, asset management fees, refinance fees, disposition fees, etc.). Additionally, the Asset Manager will usually retain 20-40% of the profits earned from property cash flow and from equity realized on sale of the property as a share of the profits. This compensation is usually divided among the members of the management team according to their respective percentage interests.
How Do You Allocate the Asset Manager’s Earnings Among the Management Team?
- People who get the deal under contract, oversee the deal by supervising property managers and reporting to investors, and remain responsible for property performance should typically retain at least 50% of the Asset Manager’s earnings.
- People who guarantee loans (even non-recourse loans need guarantors) may earn 20-25% of the Asset Manager’s Earnings.
- People who find the deal but don’t get it under contract (deal-finders or bird-dogs) can be paid a one-time share of the Manager’s Acquisition Fee, but if you want to keep them in the deal, they may also earn a small percentage of the Asset Manager’s earnings.
- People who raise money and take on a role in management may earn 25-50% of the Asset Manager’s Earnings. Note that due to the prohibition against paying commissions to anyone except licensed securities broker-dealers, it is necessary that such persons take on a role in management if they wish to be compensated; and the amount they are paid cannot be related to the amount of funds they raise.
- People who lend experience that helps you get a loan or investors may receive a small amount of the Asset Manager’s earnings (2-5%).
In summary, at least 50% is usually retained for the people who get the deal under contract and will be responsible for asset management over the holding period; remember that these are the people who are ultimately responsible to investors for performance of the deal. The other 50% of the Syndicator’s retained interests can be carved up among those who contribute the other services listed above.
There is no exact formula, and these numbers are arbitrary and completely up for negotiation, but we hope this provides some guidance for how to allocate interests among the members of your management team.