Palace Way is a Developer/ Sponsored investment. Your are investing at the cost of development level rather than going into a project being purchased after development. When our projects are built and leased our goal is a value that is double the development cost.
When comparing investment, it is best practice to compare all the fees being charged and the total targeted return expected. The targeted return for Place Way projects varies from 14.9% - 22.8% the range is because it is hard to estimate selling price cap rates 10-years out.
Each investment companies’ funds are structured differently. Looking at a few investment opportunities typical fee structure: Here is what we found. Source
· acquisition fee 2- 7%
· Committed capital fee 1-20%
· Management fee 1-2% (yearly)
· Setup organization fee .5-2%
· Selling fee 1-3.75%
· Administration fee .10-.20%
· Debt placement fee .25-1%
· Wholesale Mkt. fee 3%
· Syndication fee 4-7%
· Retained interest 20-30%
The Palace Way (PW) Opportunity Zone (OZ) Fund fee's: The fund invests primarily in Palace Way development projects. Here is the PW OZ Fund’s fee structure:
· 2% annual management fee
· No retained interest
· No acquisition fees
Palace Way Development Projects Fee's: As we are the developers we have considerably fewer fess. We do get a higher retained interest based the success of the project and after the preferred rate is paid to investors.
· Development fee 3% of cost.
· Selling disposition fee 3 %
· Retained interest 50% after preferred rate paid to investors.
PW Investors are paid a preferred rate of 8% that accrues to the investors account from the month following date of deposit. Preferred rates are paid and caught up before any profit share to the syndicator-developer with estimated total return of all profits and gains to investors of 61% over the life of the project.
The PW operating agreement has provisions for a placement fees and management fee in the event should they become necessary for the success of the project. They are currently not charged.
Most investments offerings have a preferred rate of return, typically 6%-10% plus a profit split. The retained interest (profit-split) of an Investment Fund is typically 15% to 30% where a Developer’s retained interest is typically 40% to 50%. This is because it is a lot more work to develop a project then buy one already developed.
Funds may have many types of fees being charged. Most fees are charged annually regardless of profits. Fees can have a large impact on total investment returns over time. Fees can be found in the offerings Operating Agreement or Management Agreement.
Most funds buy projects already developed and cash flowing or projects needing updating (value-add). The price they pay is based on the property’s profitability and the property condition (the market price).
What attracts investors to new real estate development like ours is that the total return to investors is often greater then investing in an asset that has been developed and leased up. This is true because the investor is buying into an asset at the cost of development level V’s investing in an asset purchased at market prices. A good analogy might be wholesale Vs retail.
A typical developer will spend 18 to 36-months and many tens of thousands of dollars getting a project to the point where investors are invited in. Developer-Sponsors typically have few fees to charge against the investors funds and only make money from the project after the preferred rate is paid to investors and the project is profitable. At that time, their split (retained interest) is often larger than an Investment Funds’.
Even though the profit (cash flow) split with a Developer-Sponsor is greater than the split with most Investment Funds the overall return to the investors is often greater over the life of the investment.
Jim E. Glasgow
This is not an offer to sell or a solicitation of any offer to buy any securities. Offers are made only by Prospectus or Private Placement Memorandum, or other offering materials. To obtain further