Form of compensation earned by the general partner in a syndication in exchange for sourcing, vetting, securing financing and closing on a new investment asset.
An acquisition fee is a form of compensation that is charged by the lessor to cover administrative expenses. In syndications, this is a form of compensation earned by the general partner for their time and efforts in sourcing, vetting, securing financing, and closing on a new investment asset.
The general partner or sponsor doesn’t typically receive a return on their investment until the end of a deal, but spends a significant amount of time working to find, research, review, and acquire the property.
In order to be compensated for this effort, most syndications include sponsor fees. One of these fees is an upfront acquisition fee that is paid out in closing once the asset is acquired.
In real estate syndications, standard acquisition fees are 1-3% of the cost of the property or asset.
However, because this can increase the cash required at closing, some sponsors may opt for an alternative way to collect this fee. If the acquisition fee is not paid out at closing, a sponsor can opt for a deferred payment. This means they will collect the acquisition fee from the investor distributions overtime until the balance of the fee reaches zero.
Before committing to any deal, all investors should have a thorough understanding of all fees included in the structure of the deal. The acquisition fee should be noted in the offering documents. It is at the discretion of the investor to review all documents to see if the listed fees, including the acquisition fee meet industry standards.
The acquisition fee is the way that syndicators are able to be compensated for all the time and effort put into finding and securing a deal. Typically, this fee is 1-2% of the deal or the capital raised, and should be enough to just cover the upfront costs of the syndicator or firm.