Expert: Mike Fortunato - 4/15/2009

Question
Mr. Fortunato,

I have a professional contact that is trying to put together the purchase of an ~$80million office building.  He approached me to find an investor for ~$30million in cash (he believes he can raise $50million in debt against the cash I find for him).

He approached me because I have contacts with the kind of cash he needs. He does not, so his deal will likely not happen without the equity investor I will bring to the table.. (I work in the private equity/venture business where a "finder" earns 3-5% on cash brought to a deal).

He has offered a modest finder's fee to me for my help in putting the deal together, but I believe he's low-balling (he's offering 0.5% on the cash and no participation or carry in the eventual upside).

In the meantime, he stands to make a 2% fee at closing and then a 2% fee annually for "assets under management" (including the $50mm debt he raises), PLUS the upside on the deal when building sells (he believes the pop could be as much as $50-80 million).

I've asked around my community for guidance on fair/market-rate terms, but the answers are all over the board.  Do you have any advice?

Chris

Answer
before i read your last paragraph, i was going to say the same thing -- there's no one correct answer. the amount of the fee largely depends on the agreement between the parties. If you feel .5% is too low (which i would tend to agree, especially without any equity participation), then simply hold your ground and negotiate the fee accordingly. From what you wrote, he needs you as much (if not more) than you need him, so that puts you in a fairly strong position. Of course, there could be other dynamics I'm not aware of that could make you want to be more flexible. Best of luck -- sounds like a good opportunity if you can work it out.