Real estate capital raising and syndication
Is an acquisition fee in a syndication fair to investors?
Short answer
It can be fair, but only if the fee is modest, clearly disclosed and the sponsor still has real money at risk. An acquisition fee charged on the whole deal at closing can leave a sponsor with little skin in the game. I prefer one transparent fee number over a stack of fees. Many sponsors talk to a securities attorney about the exact terms.
Fairness depends on two things. How big the fee is, and what else the sponsor gets paid on top of it. In my experience, a single acquisition fee that is clearly disclosed is a common approach. A pile of fees that all hit before investors see a return is where people get uncomfortable.
Where the acquisition fee starts to hurt alignment
In my webinars I describe a pattern I see a lot. A sponsor charges a 2% acquisition fee on the whole deal and puts up only 2% of the equity as the GP. At closing, that fee can cover the sponsor's entire investment. In that case the sponsor may have taken their skin off the table in the first 9 to 14 months, which can weaken their incentive to make sure the investor does well.
Add a management fee and the picture gets worse. If the deal struggles, that sponsor has little reason to work as hard as someone who would feel real pain from a loss. I want a structure that pays well when the gains are there and hurts when the losses are there.
Here I explain why a fee on the whole deal can leave a GP with almost no skin in the game.
Summary and key takeaways from this video
Why stacked fees bother investors more than one fee
A guest on my joint venture webinar said they do not charge acquisition fees at all. They only keep a fee in some cases where they acted as the broker on the buy side. Especially with a co-GP, they keep fees very fair and very transparent.
"I don't think investors appreciate it when you have an acquisition fee and then a project management fee and a development fee and a disposition fee and closing costs."
That matches what I hear. Their preference was one number that is easy to see. I have always encouraged sponsors to think this way, even though I know some people successfully run deals with many types of fees.
This clip has the guest explaining why they keep fees to one transparent number when working with co-GPs.
What family offices actually want to see
In my experience, many family offices are not looking for the cheapest deal. They want to pay for value and get what they paid for. They do not want to pay a lot to a sponsor who loses them money or only breaks even.
So when I look at a fee table, I ask a few simple questions:
- Is the fee clearly written down and easy to find?
- Does the sponsor invest meaningful capital of their own?
- Is the sponsor paid more when investors are paid more?
- How many separate fees are there, and when does each one get paid?
If the answers are good, an acquisition fee can be a reasonable way to pay for the work of finding, underwriting and closing a deal. If the sponsor is paid well at closing and has little at risk afterward, I would push back or look for a better structure.
This is general education and not legal advice. Many sponsors talk to a securities attorney about fee terms and disclosures.
From the Family Office Club stage
Here is the math I like to show sponsors. Even a 1% acquisition fee is charged on the total price of the asset, not just the equity. Once debt is in place, that fee can make the small equity check the sponsor puts in almost meaningless, and there may be little real chance for them to lose. Compare that with a structure where the sponsor does not make a dollar until investors have doubled their money. Many family offices are willing to pay well for that kind of alignment.
"If you do the math on just a 1% acquisition fee, that's on the total price of the asset, and that's going to add up. It basically makes the 4% equity portion needed once you have the debt in place meaningless, and there's no way the person offering the deal could lose."
"Importantly, we don't make a dollar until you have doubled your money. Every other real estate deal that we have seen charges you acquisition fees, disposition fees, financing fees, a capital raiser fee, an annual asset management fee."
Facts and figures
- A 2% acquisition fee on the whole deal can offset a GP who only puts up 2% of the equity, leaving almost no skin in the game.
- One webinar guest does not charge acquisition fees and keeps a fee only in some cases where they acted as the buy-side broker.
- The sponsor's skin can come off the table in the first 9 to 14 months when fees are collected at closing.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Capital Raising Frequently Asked Questions Webinar, Joint Venture & Co-GP Webinar - How to Close Deals with Peers & Partners in the Family Office Club. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around fee disclosure language, sponsor compensation structure and offering documents. Do not use AI to write your own legal agreements.
Your next steps
- List every fee in the deal and when each one is paid.
- Compare the sponsor's cash invested to the fees collected at closing.
- Ask whether fees can be combined into one clear number.
- Tie more of the sponsor's pay to investor returns.
- Many sponsors talk to a securities attorney about the fee language before they raise.
Follow-up questions
Should a sponsor charge an acquisition fee at all?
Some do and some do not. One guest on my webinar does not charge one, except when acting as the buy-side broker. Whatever you choose, keep it clear and keep your own capital at risk.
What is the problem with several different fees?
Investors do not like seeing acquisition, project management, development and disposition fees all stacked together. I would rather see one number that is very transparent.
Does the fee matter more than the sponsor's own investment?
They work together. A fee that covers the sponsor's own check at closing weakens alignment, because the sponsor gets paid whether or not the investor does well.
Related questions
- What do 1031 exchange investors look for in a syndication?1031 exchange investors look for a deal they can understand quickly, a structure that fits their exchange deadlines, and a sponsor who clearly knows how exchanges work.
- How do I raise money for opportunity zone projects?Start with a project that is already well built, then put it in the zone and show investors the real numbers.
- How much of my own money should a sponsor co-invest?A sponsor should put in an amount that is meaningful to them, and there is no universal number.
- What happens to investors when a syndication deal goes bad?When a syndication goes bad, distributions usually stop first.
Work through it with the data room checklist. See all real estate capital raising and syndication resources.