Two partners redesign their fund structure from 70/30 to 50/50, splitting management fees and promote while keeping development fees separate. They add a debt component offering guaranteed returns and quarterly distributions, with a 49/51 split between equity and debt for investors.
Can you guys do debt mentoring instead of the 70/30 model we had, being that we're splitting everything 50/50?
And so we can— what we would do is sit down with you guys for about 2 hours and just sit here and have a conversation back and forth with our GPT to structure this thing exactly how it needs to be so that all the economics make sense for everybody. What we do as far as being fund manager sponsors, we do a 50/50 split, and we— and that's how we operate as a co-GP. Is that we do that split within the fund management side, the fund management structure. We don't take— and as a matter of fact, we don't want any part of the development side because then there's that conflict of interest that we'd need to disclose in our disclosure document. But again, when you're able to show that the profits from the actual development are going back to the investors, you can easily explain, well, this is how we get paid. Don't you want us to make money?
So just to get case study. So right now we're doing 70/30, what we're doing, we're doing management fees and development fees. If we were to bring it to you, then we would keep our development fees, but we'd split the management fees and promote.
And you'd actually, and we would just have tied into that. We would also, for example, have, we can actually create the debt structure and create the debt offering for investors to put into. So the, at what we would end up doing is we would end up being able to debt structure for you on the construction and the debt side of it in a way that because of that, because of the contractual portion of it being a contractual debt structure, we can guarantee those returns to investors instead of banks.
So on the debt side, you would just get a prep on the cap for the investors.
Correct. And then, and that would provide an early cash flow. The investors into the debt, we could set it up to where they get a, a distribution quarterly or even annually. That would certainly increase the opportunity for them to contribute.
Can you guys do debt net gain instead of the 730 model we had, being that we're splitting everything 50/50? If we can do 49% prep, 51% debt net gain for the investors, and you do the prep, you do the Do you split the whole thing, but instead of the 70/30, you do a 50/50?
As far as with your investors, 51 to the fund, right? Okay.
And then 49—
we can certainly run the numbers in there and put it up that way and structure it that way.
So one of the things we do is we say, do the numbers, not tell you what to do. So we would run all the different scenarios and then it needs to be a win-win-win for everybody.
