A member of a syndication asset management entity can convert all or part of their uncollected management fees (such as the acquisition fee), or any other reimbursements that were owed on acquisition of the property, into investor membership interests. If you are using a Class A/Class B structure, where investors purchase Class A Units or Interests, and the management team retains Class B Interests, you can, instead of collecting the cash, use it to buy Class A Interests. This would not affect your Class B Interests; you would simply own both Class A and Class B Interests.
To document this, you would add yourself to the list of investors for the amount you didn’t collect. However, once you do this, your funds will be tied up alongside all the rest of your investors for the duration of the project until there is a capital transaction that returns capital contributions to them. All investment dollars are created equal, so you will be treated exactly the same as the other investors are treated, both for purposes of receiving a return on your investment or a return of your capital contribution, and for voting purposes.
Alternatively, you could treat unreimbursed expenses and any deferred fees as a “manager advance” and charge interest on it. You wouldn’t be obligated to keep these funds in the deal until your investor class gets repaid, as you would if you convert it to Class A Interests. See the section of your operating agreement called “Manager Advance.”
If you elect to treat it as a manager advance, you would create a promissory note, showing the loan principal as the amount of the manager advance, and apply the interest rate stated in the “Manager Advance” or “Manager Fees” section of your operating agreement. This option would allow you to pay yourselves the principal amount plus interest from subsequent cash flow or from a capital transaction, before paying distributable cash or returning capital contributions to the Class A Members. Manager or member loans have priority over distributions or repayment of capital contributions to investors.
You should check with your CPA regarding the tax consequences of making the conversion to Class A Interests or treating it as a manager advance, as the IRS may consider the acquisition fee earned and taxable at the point of conversion or advance. In that case, you may want to retain some portion of it to pay the tax.
