I currently work at a boutique RE investment/development firm specifically focused in Souther California. When I say boutique I mean very boutique. Besides our back of the house operations (accountants, property managers, etc.) it is the principal of the company and myself doing all the deals. The firm is a family company and most of our capital stems from family funds. We typically do deals in the $5-$10mm range, but we're very high volume. For reference, i've only been here for about 4 months and I've sourced, negotiated, planned, strategized, and closed on 4 development deals with 2 more are on the way/in contract.
My role is quite unique in the sense that I've single handedly developed our commercial acquisitions strategy and I spearhead almost everything involved in the acquisition & pre-development process. When I say everything, I do mean EVERYTHING. Here's an example with a development deal in West Hollywood I've been working on:
- I sourced and then negotiated the full purchase of the property with the broker and set the terms and conditions for our purchase. Everything below happened within the 21 day due diligence period...
- The deal was for a duplex with a single occupied unit. Post opening escrow I spent the next two weeks negotiating a cash for keys agreement with the current tenant including dealing with the RSO folks in WeHo and making sure I wrote up a proper and bullet proof contract for vacancy agreement.
- All and any development feasibility analysis runs through me. One of my biggest sources of value is my land use expertise, and in the open marketplace I know for a fact I could charge up to $300 an hour for my experience, which I did before I got this gig. For this particular property I knew exactly what we could build on the lot from day one, but I still took the liberty of visiting the WeHo planning commission, double checking our due diligence procedures, and confirming land use feasibility for this hypothetical project.
- We have a development manager once things start to run themselves, but until a deal reaches that stage I handle all of the preliminary consultant sourcing which in and of itself requires a good deal of effort and research. I had to find an architect that knows development from front to back in WeHo, as well as the proper consultants (engineers, soils, survey, etc etc) in order to put together all the pieces before I hand the project over to our dev manager.
- Finally, I also took the liberty of finding out who the neighbors are, what their financial situation is, and how we can best make offers to them as well. At the moment, I'm close to securing deals with BOTH adjacent neighbors and turning this 10 unit development into a 30+ unit deal with the increased lot area.
The above processes are the norm for every single deal I've sourced so far. Last thing to note, is that before I joined, the firm didn't even really do development deals. They've traditionally focused on single family flips, believe it or not, and they had maybe 1 or 2 multi-family development projects a year. I've practically started a new investment division.
I'm in quite a unique situation, and the way I've been looking at it, is that I've essentially started, and am running my own shop, albeit within their team and utilizing their capital and talent pool, but otherwise leading my own ship.
That said, I'm really not sure what's appropriate to ask for in term of equity? I'm currently thinking around 20% with 3 years of vesting, as quite frankly I feel that's very fair for everything I just explained above and truly, if I packed up and left tomorrow they would be kinda fucked and lost in the woods on everything I've so far gotten them into.
I'm currently being paid a quite modest employee salary.
Thoughts?
Got it. Congratulations on the opportunity, sounds like a gem especially early stage in your career. I'd say your most savvy 'ask' would be a small acquisition fee (% based) on each deal you acquire to compensate you that way. Then on top of that, you should ask for the ability to participate in the deal OR get carried (sweat) equity. If you go the participation route, you'll probably be able to get better return potential since they'll think more favorably on it / give up more if they perceive you have more skin in the game. The carry play is obviously less attractive to them since the risk is all on their part, so they'd probably keep more of the upside themselves as a result.
You could also do some type of internal waterfall where you get promote based on performance metrics. All of these combo structures would let you forego the salary after a short while which is better for both you and the family.
If you want to take a look at this stuff in greater detail PM me and I can share some structure ideas I've seen in comparable situations.
As a sidebar, keep in touch, would be great to grab coffee/lunch sometime since I'm in the same geographic area. Might be some opportunity for us to work together in future.