![]() When evaluating developer fees, there are a few important considerations to keep in mind.įirst and foremost, you’ll want to understand how many fees the developer is charging and whether these fees are in line with the industry averages as noted above. The GC fee is also the profit the general contractor expects to make during the construction phase for their role in overseeing the physical construction of the project. The GC fee covers costs such as bidding out construction documents to suppliers and subcontractors, negotiating subcontractor agreements, providing due diligence related to subcontractor selection, and any other costs incurred during the design phase. However, it is common for real estate developers (particularly on large projects) to outsource GC responsibilities. As a rule of thumb, if the real estate developer is ALSO serving as the general contractor, this fee should be at the lower end of that range, given that the developer is already taking its own fee. This is an additional fee, ranging from 3 to 4 percent of hard costs only, that is tacked on to the project by the general contractor. Regardless of whether construction management is handled in-house by the developer or outsourced to a third-party provider, investors can reasonably expect to see development fees in the range of 3 to 5 percent of total project costs ( acquisition + hard + soft costs). Related: 5 Questions to Ask When Evaluating a Real Estate Developer ![]() These fee-for-service development partners generally charge a flat monthly fee for their work. Some real estate developers outsource this project management capacity to a third-party firm that has no equity in the project. This fee is generally used to cover corporate overhead and sometimes contributes to the developer’s profit for the project. The development fee, also sometimes referred to as the “construction management fee,” is the fee a real estate developer takes to oversee the entirety of the development project, from pre-construction (e.g., the design and entitlement processes). ![]() Most developers will insist on taking an acquisition fee, which is typically used to cover the compensation of the acquisitions team. The industry standard tends to be about 1 percent of the purchase price. This is the fee that a commercial real estate developer charges for finding and facilitating the acquisition of the parcel slated for redevelopment. There are generally four types of development fees to be aware of when analyzing a commercial real estate investment opportunity: Acquisition Fee In this article, we take a look at the different types of real estate developer fees, including the role of these fees and what you might expect them to cost. The first three buckets are important to understand in their own right, but they’re especially important given that most developers’ fees are calculated as some percentage of the other three costs combined. Instead, they look at the total project costs without requesting a detailed breakdown of acquisition costs, hard costs, soft costs, and the developers’ fees. This is a critical step in the due diligence process that many people overlook. Anyone who is investing in a commercial real estate deal should take the time to really understand how their money will be spent.
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