Equity partners typically contribute 20% or more of total development costs to the project. A portion of these funds may be used to purchase the land and existing buildings, with the remainder being used towards overall development costs associated with the project.
The developer will provide the necessary expertise and support to make the project a success. The value that the developer will add to the project will include, but is not be limited the following:
The developer will promote the interests of the client by:
- Analyzing the site and creating a concept for development of the land
- Promoting the project
- Arranging for lease commitments
- Designing and engineering of a site plan for the project
- Preparing for planning, zoning, financing, and marketing
Initiating zoning / annexation / subdivision talks with city / county.
The developer will oversee / direct the following activities during development:
- Formation of LLC
- Purchasing, marketing, leasing, sale, and closings on the project
- Obtaining construction and permanent financing
- Bidding and letting of construction contracts
- Money and materials management
- Distribution of funds for expenses
- Distribution of proceeds
In compensation for the contributions that each member of the LLC brings to the organization the allocation of funds will be made in stages. The first allocation will be yearly net proceeds. The second allocation will occur after the refinance of the project and the repayment of all debts associated with the project. The third allocation will occur after the sale of the project and the repayment of all debts associated with the project.
Yearly net proceeds distribution will give the equity partner a market rate priority distribution of annual net profits based on their total capital contribution. If annual net proceeds exceed the market rate priority distribution, the equity partner and developer will share in the remainder of the net proceeds.
Upon the sale or refinance of the development and before the dissolution of the LLC, further allocations of funds will occur. This distribution will be made after the payment of all debts associated with the project to include but not be limited to permanent financing, operating costs, real estate commissions and closing costs. After all debts have been repaid, the net sale proceeds distribution will give the equity partner a priority distribution of the equity partners preferred returns. Repayment of Investors’ Capital Accounts balance will be the next priority. If proceeds exceed these capital distributions, the equity partner and developer will share in the remainder of the net sales or refinance proceeds based on their percentage ownership.