Question

To develop or acquire a real estate project, a sponsor may need to attract an equity partner since lenders generally will not finance 100% of a project's cost. Though there are many ways to compensate a financial partner for putting equity in a deal, a common scenario would be:

	a.	Simple percentage of net cash flow from property
	b.	Preferred return on investor capital, a negotiated share of residual cash flow and priority distributions on sale
	c.	Upfront cash fee and back end residual
	d.	Payment of a preferred return on capital prior to making debt service payments to lender and priority return on sale until capital has been recovered

Answer 1

A common scenario, to compensate a financial partner for putting equity in a deal is

b. Preferred return on investor capital, a negotiated share of residual cash flow and priority distributions on sale.