One of the most common you’ll see in real estate deals is the disposition fee—a slice of the gross sale price that the sponsor collects at exit. On paper, it sounds reasonable: the sponsor sold the asset, so they get compensated.
But here’s the problem—why should a GP collect a fee if investors haven’t even cleared their preferred return? That never sat right with me. And after reading a post by Aleksey Chernobelskiy that called it out directly, it really clicked: disposition fees misalign incentives.
So, for our upcoming industrial outdoor storage deal, we’re not charging one. Instead, we’ve built in a home run hurdle—a promote structure that rewards us only after we’ve delivered serious results for our investors:
- Capital returned + 8% preferred return to investors
- 20% promote on profits up to a 15% return
- 30% promote on profits up to a 20% return
- 40% promote on profits above a 20% return (and a 1.7x equity multiple)
Here’s the bottom line:
✅ If the deal is just okay, investors keep the upside.
✅ If the deal is a home run, we share in that success—because we’ve earned it.
It’s cleaner. It’s more transparent. And it keeps us 100% aligned with our partners.
We win only when our investors win big.
Curious how other sponsors are thinking about fee alignment?
Would love to hear how you’re structuring promotes in today’s environment.
Not all fees are created equal.
One of the most common you’ll see in real estate deals is the disposition fee—a slice of the gross sale price that the sponsor collects at exit. On paper, it sounds reasonable: the sponsor sold the asset, so they get compensated.
But here’s the problem—why should a GP collect a fee if investors haven’t even cleared their preferred return? That never sat right with me. And after reading a post by Aleksey Chernobelskiy that called it out directly, it really clicked: disposition fees misalign incentives.
So, for our upcoming industrial outdoor storage deal, we’re not charging one. Instead, we’ve built in a home run hurdle—a promote structure that rewards us only after we’ve delivered serious results for our investors:
- Capital returned + 8% preferred return to investors
- 20% promote on profits up to a 15% return
- 30% promote on profits up to a 20% return
- 40% promote on profits above a 20% return (and a 1.7x equity multiple)
Here’s the bottom line:
✅ If the deal is just okay, investors keep the upside.
✅ If the deal is a home run, we share in that success—because we’ve earned it.
It’s cleaner. It’s more transparent. And it keeps us 100% aligned with our partners.
We win only when our investors win big.
Curious how other sponsors are thinking about fee alignment?
Would love to hear how you’re structuring promotes in today’s environment.
#RealEstateInvesting #PrivateEquity #IndustrialOutdoorStorage #InvestorAlignment #CRE #FamilyOffice #AlternativeInvestments