by Zoe Hughes
September 9, 2016

Two Upstarts Seek New Approach to Funds & Fees

Two real estate investment managers are trying to break the mold on fund structures and fees

When it comes to  private equity real estate fund structuring and fees, change comes especially slowly.

Of the more than 500 closed-ended funds currently in the market, the vast majority boast a typical seven to 10-year term, with management fees of 1.5 percent, 20 percent carried interest, and hurdle rates around 8 percent. And few, other than Blackstone, dare charge acquisition fees.

Yet two real estate developers have recently tried to break the mold, by offering innovative fee structures or providing access to new forms of investment.

Woodfine Capital Projects—A New Structure, at 1 & 10

Woodfine Capital Projects, a Canadian developer run by father-son team Peter and Mathew Woodfine, is doing so by charging a 1 percent fee on gross funded value, a 10 percent promote and absorbing broken deal costs. The firm structured the vehicle as a public, non-listed, closed-end fund registered in Canada, with a target equity raise of C$250M.

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Mathew Woodfine, Woodfine Capital Projects

The fund is focused on office, retail, and industrial space in secondary markets within Alberta and British Columbia and has garnered C$110M in commitments to- date, according to filings on SEDAR, the Alberta Securities Commission website.

What’s interesting about the fund, though, is that the management fee is just 1 percent of gross funded value—against the industry standard net asset value—and that the 10 percent promote comes from Woodfine taking 10 percent of the LP units in the non-listed vehicle.

“We realized [our fees] had to be a fixed contribution rather than a profit source,” says Mathew, the chief operating officer. “This comes from our original [family office capital sources]. We had to submit expenses every month and they went through them line item by line item.”

The same thesis is behind the firm’s refusal to introduce broken deal costs, he says. “We never got reimbursed for non-performance and it goes back to working with the original family office. It was unheard of in the world we came from [to ask for costs for broken deals].” The firm is also looking to break tradition by issuing first-secured debentures to raise financing for deals, as opposed to securing development loans from banks for its projects.

PRP—An Operating Partner Fund

Washington, D.C.-based investment manager PRP is inviting LPs to take stakes in the co-investment of its deals.

Operating partner funds have been used for years by operators and developers to help fund their co-investment obligations on deals, and have offered incentives such as sharing the promote or carried interest. However, such funds typically lack scale and are usually offered only to friends and family or high-net-worth clients.

According to sources, PRP is raising a $100M institutional operating partner fund that could boost LP returns by several hundred basis points—with investors sharing in the promote paid to PRP in each investment.

According to documents on PRP’s website, the firm, which is vertically-integrated, targets multifamily and office deals in Philadelphia, Washington, D.C., Raleigh, N.C., Atlanta, Charlotte, and South Florida. The firm declined to comment.