Our investment structures are tied to the performance of the investment, and not just closing deals like the typical preferred return strategy.
I originally didn’t plan to dive into the fee structure at all, but since Kenny brought up some great points, I think I’ll dive into the fees and how some different structures affect the incentives and performance of deals.
That can sometimes put unnecessary risk on the asset if they are being to aggressive.
We have steered clear of preferred returns mostly because those are usually accompanied with up-front fees charged to investors.
On the other hand, acquisition fees can be enormous on large deals and can drive some deal sponsors to be short-sighted and focus on closing deals rather than operating deals profitably.
Think about it, a m deal with 2 point acquisition fee is 0,000. You can see how some sponsors will lose track of buying good deals and focus on just closing deals, regardless of how good they are.
He said he likes to have an 8% preferred return for the majority of his 450 door portfolio.
It “gives some certainty to investors about their overall returns.
Here are the most common ones I’ve seen this anywhere from 0 to 5 points with 2 being the most common.
Acquisition fees in a syndication are really common and most have them, but not all.