Sponsor fees and the distribution waterfallEvery fee we charge, and where we sit in the waterfall.

The question underneath every other question

Every conversation about a private real estate deal eventually reduces to one question, and it is rarely asked directly: does the sponsor make money before I do, or after? Everything else, the market, the business plan, the projected return, sits downstream of that.

It is a hard question to answer from an offering deck, because fees are disclosed in a document nobody reads closely and the promote is described in a sentence that requires you to already understand waterfalls. The information is technically available and practically buried.

So this page sets out every fee we charge, what each one is actually for, and where we sit in the order of payment. It also sets out how each of these fees can be structured to favor a sponsor, including ways we do not use, because you cannot evaluate our terms without knowing what the alternatives look like.

What is not on this page yet

The amounts are not here. They are marked Pending in the table below and they will stay that way until the fee schedule is finalized and signed off, at which point every one of them appears with a number against it.

We would rather show you a page that is honest about what it is missing than one that fills the gap with a plausible range. A fee page carrying an estimate is not a fee page.

What follows is therefore the structure rather than the pricing: the definitions, the bases, and the order. That part does not change when the numbers arrive, and it is the part that lets you compare us against another sponsor once you have both.

The base matters more than the percentage

This is the single most useful thing on this page, and almost nobody explains it. A fee has two halves: a rate and a base. Investors compare rates and ignore bases, and the base is where the money is.

Take an asset management fee. Charged on collected revenue, it falls when the property underperforms, because there is less revenue to charge it against. Charged on committed capital, it is identical whether the property is full or half empty. Charged on assets under management at the sponsor's own valuation, it can rise while your distributions fall, because the sponsor marks the value.

Those three can produce the same headline percentage and completely different outcomes in a bad year. The first shares the pain with you. The third does the opposite.

The same logic runs through every line. An acquisition fee on the purchase price is smaller than one on total capitalization, which includes closing costs, financing costs and reserves. A construction management fee on actual spend is smaller than one on budget, and only the first one falls if a project is canceled.

When you compare two sponsors, get the base for every line before you compare a single percentage. A sponsor who cannot tell you the base immediately has not thought about it, which is its own answer.

What each line is for

Acquisition fee. One time, at closing, out of the raise. It pays for the work that happened before you saw the deal: sourcing, underwriting, negotiating, physical and legal diligence, and getting to a close on a contractual deadline. Most of that work is spent on properties that are never bought, so the fee on the one that closes is carrying the cost of the ones that did not. The fair criticism is that it is paid regardless of how the asset performs, which is why the base and the size both matter.

Asset management fee. Ongoing, and the one that compounds. It pays for running the asset: overseeing the property manager, budgets and reforecasts, lender reporting and covenant compliance, insurance renewals, and investor reporting and K-1 coordination. Ours is charged on collected revenue rather than on committed capital, so it does not accrue at full value while an asset is underperforming.

Construction management fee. Charged only on capital projects actually executed, on the spend rather than on the budget. Renovation is where a value-add plan is won or lost, and it is genuine work: scoping, bidding, sequencing around occupancy, and holding contractors to a schedule. Charged on budget rather than spend, it would pay the same on a project that stalled.

Disposition or refinance fee. One time, at the capital event. It covers running a sale or a refinancing, which is a months-long process. Ours sits after limited partner capital and preferred return are satisfied, which is the placement that matters more than the rate.

Preferred return. Not a fee at all, but part of the same arithmetic. It accrues from the date your capital is funded and any shortfall carries forward, so a year the property misses is deferred rather than deleted. That single property is worth more to a limited partner than most fee reductions, and it is explained at cumulative versus non-cumulative preferred returns.

Promote. Our share of profit above the preferred return, paid last. It is the only line on this page that is contingent on you doing well first.

Where we sit in the order

A waterfall is a sequence, not a rate. Cash fills each tier before any of it reaches the next, so the order decides what you actually receive and the headline percentages decide much less than investors assume.

The structural point is the placement of the promote. It sits at the bottom, paid out of profits that only exist once your capital has been returned and your preferred return, including any accrued shortfall, has been paid. If those two things do not happen, there is no promote.

Fees are different and it is worth being blunt about it. Fees sit above the waterfall and are paid whether or not the deal performs. That is true of every sponsor including us, and any sponsor implying otherwise is describing a structure that does not exist. The honest framing is not that our fees are contingent, it is that the ratio between our fees and our promote tells you what we are actually paid for.

That ratio is the number worth asking us for, and it is a fair question to put to any sponsor: in the base case, what proportion of your total expected compensation comes from fees rather than from the promote? A sponsor paid mostly in fees is paid for transacting and holding. One paid mostly in promote is paid for outcomes.

Co-investment, with a number attached

Every sponsor says they invest alongside their investors. The claim is close to meaningless without two figures: how much, in dollars, and where it came from.

The distinction that matters is between cash from the sponsor's own balance sheet and a deferred fee credited as equity. Both appear in a capital account. Only one of them was money the sponsor could have kept. A fee converted into equity did not come out of anywhere, and it is not the same as writing a check.

Ask for the dollar amount and the source, and ask whether the co-investment sits on the same terms as yours or on preferential ones. Ours is on the same terms, in the same position, in every deal. The amount appears in this table when the schedule is published.

How to compare this against another sponsor

Comparing fee schedules line by line is the wrong exercise, because a sponsor can move cost between lines and produce a schedule that looks cheaper while costing more. Three questions do better.

What is the total load? Ask for aggregate fees as a percentage of invested capital across the expected hold, not line by line. It is one number and it is the one that reaches your return.

What is the base on every line? Covered above, and it is where the difference usually hides.

What is the fee-to-promote ratio in the base case? This tells you what behavior the structure rewards, which matters more over a five to seven year hold than any single percentage.

It is also worth holding private real estate against the alternatives honestly. For non-traded REITs the SEC states that "sales commissions and upfront offering fees usually total approximately 9 to 10 percent of the investment," and that these costs "lower the value of the investment by a significant amount." It also warns that non-traded REITs "frequently pay distributions in excess of their funds from operations" and may use offering proceeds and borrowings to do so. A listed REIT, by contrast, is generally the cheapest way to own real estate on any reasonable measure, and we would rather say that than pretend otherwise.

What a private deal offers instead is property-level specificity and flow-through depreciation reported to you on a Schedule K-1. Whether that is worth the fee load is a judgment, and it is yours. The comparison is set out at syndication versus REIT.

Checking any of this yourself

You do not have to take a fee schedule on trust, and you should not take ours on trust either.

Every offering under Rule 506 files a Form D notice with the SEC within 15 days after the first sale. It is public and searchable on EDGAR, and it gives you a countable history of a sponsor's prior offerings: how many, how large, and how much was actually sold against what was offered. It takes about five minutes and most investors never do it.

Be clear about what a filing is, though. It is a notice, not an approval. Nobody at the SEC reviews the offering, the fees, the projections or the sponsor, which is what the SEC's own material on private placements makes plain. The fee schedule that binds is the one in the operating agreement, and where a summary and that document differ, the document wins.

Our fuller diligence list, written to be used against us, is at how to vet a sponsor.

What to ask us, and any other sponsor

1. What is the base for every fee: purchase price or total capitalization, collected revenue or committed capital, actual spend or budget?
2. What is the aggregate fee load as a percentage of invested capital across the expected hold?
3. In the base case, what proportion of your total compensation comes from fees rather than promote?
4. Is the preferred return cumulative, and does an unpaid amount accrue before any promote is taken?
5. How much have you co-invested in dollars, is it cash or a deferred fee credited as equity, and is it on the same terms as mine?
6. Which of these fees are paid to an affiliate of yours rather than to a third party, and how was that price benchmarked?
7. What is the entity name I should search on EDGAR for your prior Form D filings?

What this is built on

1. Investor.gov, U.S. Securities and Exchange Commission, Real estate investment trusts (REITs)
2. Investor.gov, Private placements under Rule 506(b) and 506(c)
3. U.S. Securities and Exchange Commission, Form D, notice of exempt offering of securities
4. U.S. Securities and Exchange Commission, EDGAR full text filing search
5. Internal Revenue Service, Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits