Managing partner fees on sale - your thoughts please.

[NJDoc]

I am an investor in a medical office building with a bunch of Docs, and we are considering a sale. The managing partner who has been compensated annually for his work is the majority owner and is requesting a fee for his work in setting up the disposition, from 1% to 2% of the gross sales price depending on the final offering price. There is a well known commercial real estate firm handling the transaction and of course they will collect a commission. Our partnership agreement does not specify fees to the managing partner on a capital event, i.e.) refi or sale.

Some of the partners are against paying the managing member a fee at all, some vote for a nominal fee, and a couple are OK with "whatever". In my other real estate deals capital events are spelled out in the partnership agreement, but not in this case. I have asked some of my contacts in the commercial real estate arena for their thoughts and their comments have ranged from, anything over 1% is excessive, to the managing member should receive no additional compensation as he is the benefitting the most from the sale.

I'd love to hear some thoughts from the group.

 

Happy 4th!

[Hatton]

Wow!  I have no experience in this type of transaction but it seems to me that you follow the agreement.

[VagabondMD]

No experience here. Offer to help set up the sale for 0.75% and see what happens!

[adventure]

Vagabond MD wrote:

No experience here. Offer to help set up the sale for 0.75% and see what happens!

Click to expand...

And/Or offer to buy the entire thing!

[NJDoc]

adventure wrote:

And/Or offer to buy the entire thing!

Click to expand...

Much too large of a deal for most individual investors.

[CordMcNally]

How majority of a partner is he? What kind of work did he do in setting up the disposition? Was it a simple phone call or was there considerable leg work?

[NJDoc]

55%

Yes, considerable leg work ...however, he is selling 3 assets at once as a package and a lot of the legwork comes in the coordination of the package. I feel that needs to be separated from the individual asset I am involved with.

[Zaphod]

NJDoc wrote:

55%

Yes, considerable leg work …however, he is selling 3 assets at once as a package and a lot of the legwork comes in the coordination of the package. I feel that needs to be separated from the individual asset I am involved with.

Click to expand...

That seems perfectly reasonable.

[VagabondMD]

NJDoc wrote:

adventure wrote:

And/Or offer to buy the entire thing! 

Click to expand…

Much too large of a deal for most individual investors.

Click to expand...

Maybe the WCI Forum should buy it.

[jfoxcpacfp]

NJDoc wrote:

55%

Yes, considerable leg work …however, he is selling 3 assets at once as a package and a lot of the legwork comes in the coordination of the package. I feel that needs to be separated from the individual asset I am involved with.

Click to expand...

So...how much leg work would there be if the medical office building were to be sold alone? Or...will he be able to command a higher price by including the other 2 pieces? On the surface, a % sounded unreasonable. However, if he is able to generate more income by working a deal together, maybe so. 1% - 2% sounds like a lot to me, though.

[NJDoc]

Johanna,

 

The legwork and packaging is done and an offer is on the table from a REIT. Highly unlikely that these would command such good sales prices individually, and the brokers commission would be higher. I think the broker is now at 2% for the package.

No doubt he did work setting this up, but I am personally balking at anything over 1%, and would prefer much less, like 20 bps. It's going to be one ************************ of a meeting when everyone gets together to approve the deal and discuss his fees.

[The White Coat Investor]

Sounds like he negotiated very badly with you guys. What's to keep you from offering 20 bps at the meeting? He has no negotiating power here. If you don't agree to what he wants, what's he going to do? Not sell all his stuff?

[NJDoc]

WCI - exactly...and that will be my offer tonight.

[q-school]

He gets nothing and likes it.
If you want a compromise, I would think a flat fee would be reasonable. If he wanted more he should have started negotiations earlier in the process