Granite Bay Development is targeting $130 million for its latest land fund with plans to charge investors a management fee only on revenue earned by the partnership.
The Granite Bay, California-based firm, the fund management arm of Canadian development company United Communities, is one of a number of firms that are adapting their management fee structures to entice reticent LPs into investing in their vehicles.
In February, one global fund manager cut its management fees to zero on unfunded commitments in an effort to help LPs’ liquidity issues.
The fund, which is currently in market raising several billion dollars, argued that in today's volatile real estate markets it might not deploy its dry powder for another 18 to 24 months. “We have told investors we will not charge you for that [decision],” the fund sponsor said at a GRI conference in New York.
According to fund documents seen by PERE, the Granite Bay Land Funds has also said its own GP co-investment capital (around $30 million) would be subordinated to investments committed by external LPs. The vehicle is targeting discounted raw land and finished lots in Sacramento and Reno with the intention of “holding” the assets until property markets return.
Instead of upfront annual management fees – which are typically between 1 percent and 3 percent but usually around 1.5 percent – Granite is asking its LPs to pay annual management fee “advances”, capped at 1 percent of total commitments a year for the first four years. These are later offset against future revenue-based management fees.
The fund documents added that Granite’s GP carry is 27.5 percent, with expected IRRs of 18 percent. According to people familiar with the matter, finished land assets (which include infrastructure such as utilities) in Sacramento and Reno are trading for around 30 cents on the dollar – less than the cost of improvement works.
Granite Bay declined to comment on the fund.