No Partners No Problems? John McNellis Los Angeles October 2017
McNellis YouTube Videos: •Starting Your Own Development Company •Exploring Real Estate’s Hardest Decision: Sell vs. Hold •Buying it Right
“The best damn book on development I’ve ever read.” Preston Butcher, real estate legend
Operating Partners, Financial Partners & the NTM
Operating Partners
Lighthouse keepers do it by themselves Developers can’t…or shouldn’t.
Time leverages better than money The moment you can afford outside help, hire it.
Rent as long as you can
Employees vs. Partners Key employees are more expensive if you fail (or just get by), but far cheaper if you truly succeed.
Our Approach? There’s more to life than money Partners for 34 years
Financial Partners
Everyone starts with a financial partner Do you break away?
The benefits of long‐term financial partners Deal Flow Prestige Risk management
$10 Million Project $4 million equity/$6 million debt Financial Partner: 90% of equity: $3.6M 7% preferred return + 65% of profits
Developer: 10% of equity: $400K Fees: ($180K) Net equity: $220K Completion guaranty 35% of profits
$10 Million Project sells for $13 million Financial Partner: $1.95 million
Developer: $1.05 million + $180K fees Total: $1.185 million
Developer has $4 Million Does she do her own deal or 10 with financial partner?
$10 Million Project No financial partner No Financial Partner:
Developer: 100% of equity: $4M No Fees Sell for $13M Net $3.5M* *(lower carrying costs)
Ten $10 Million Projects with financial partner Financial Partner: 10 projects x $1.95M $19.5 million profit
Developer: $1.185M on each project X 10 Total Profit: $11.85M
$4 Million invested with/without financial partners With Partner: (10 deals)
Without Partner: (1 deal)
$11.85 million
$3.5 million
No brainer? Maybe not Great deals are hard to find. Highly unlikely to average $3M profit. Pushing deal quotas intensifies risk. 10X the work = serious overhead & reduced profit share.
Partnership Conflicts Good faith differences of opinion. Change of long‐term strategy. Unanticipated events.