Two fee stacks on the same 200 unit deal. Which costs me less?

Asset management fee on gross collected revenue is the line I'd argue about. On a 200 unit deal at, say, $3.6m of revenue, 2% is $72k a year regardless of whether distributions happen. Charge it on invested equity and it's a fixed number I can see in the sources and uses. Charge it on revenue and it grows as the sponsor's own rent growth assumptions come true, which pays them for the projection rather than the result. B, on that line alone.

Watch the word subordinated in Stack B. Subordinated to the pref usually means it accrues and gets paid later out of the waterfall, so it isn't forgiven, it's parked. Ask whether the accrued fee compounds while it waits and where it sits relative to return of capital at sale. I've seen a stack where the deferred fee got paid in full before LP capital came back, which makes the subordination mostly cosmetic.

Nobody's mentioned the construction management fee yet, which on a value-add plan with $15k a door of capex is a bigger number than the acquisition fee. 5% of $3m is $150k, and it often goes to an affiliate of the sponsor who also holds the GC contract. That's where I'd look, tally. Ask for the affiliate disclosure and who signs the GC agreement, because if the sponsor's own construction arm is both pricing and inspecting the work, the capex budget is a fee vehicle.

The catchup in B is doing more damage than it looks. A full catchup means once the pref clears, the sponsor takes everything until they're whole to 30%, so LPs sit at zero incremental dollars through that band. Model it at 1.6x instead of 1.8x and see if you even get out of the catchup. Sometimes the deal only works for the LP at the exact multiple in the pitch, which is a strange coincidence.

I've held both shapes and the co-invest is what I'd pay for. 10% cash on the same terms means the sponsor's downside starts at the same dollar mine does. At 1% co-invest with fees paid out of revenue, a sponsor can lose the deal entirely and still have collected several years of fees and made money. That asymmetry showed up in how two sponsors behaved when occupancy fell, one took a hard bridge extension and personally funded the rate cap, the other stopped answering quarterly questions.

But I'd verify the co-invest, cairn's point applies here too. Ask whether it's cash at closing or credited from a waived acquisition fee, because a fee credited as equity isn't skin, it's bookkeeping. Get the closing statement treatment in writing.

Do both of these charge a refinance fee? That one got me interested when I read a deal doc where the sponsor collected 1% on the new loan amount at a cash-out refi, which is a fee for creating an event they control the timing of.

I care about the 8 versus 6 pref more than the promote, because I'm in this for the distribution, not the exit. 8% non-compounding on $100k is $8k a year in theory. What I want to know is whether either sponsor has actually paid the pref in cash quarterly on a current deal, or whether it's been accruing on paper. That's a question about their track record, not the document.

Add up the A fees in the bad case and you get the answer to your own question, tally. Flat NOI, no sale in year five, hold extends. Stack A still pays 2% of revenue every month plus already banked 2% of purchase price at close. Stack B's AM fee stops flowing and the sponsor has 10% of their own money sitting dead alongside mine. I'd sign B and negotiate the catchup down to a 60/40 tier if I could, though as an LP writing $75k I've never once had that negotiation go anywhere.