I work for a private residential homebuilder and developer and as we analyze potential deals we consider several avenues for development and construction, as well as financing. I am in the process of creating a multiple scenario proforma for feasibiity analysis and needed the industry average for developer fee, general contractor fee and developer acting as GC fee (the general consensus on the latter seems to be that in lieu of a normal GC fee, 1% is tacked on to the developer fee when the developer is also GC). I also wanted to confirm that the developer fee is typically on all land development AND construction costs and GC is just construction (this would really be more a question when we are receiving HUD financing and lines are a bit blurred between GC and Developer by overlapping supervision).
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In my personal experience working for both commercial and multi-family developers, the development fee is around 2-3% of total project costs (excluding land cost and actual value of development fee). The GC fee really depends--3-4% on the total project hard costs only is typical, with larger projects (ie $150+ hard costs) pushing the fee down to low 3%s. That is in addition to typical general conditions costs the GC will incur as part of the job.
Is the project cost for the developer fee calculation inclusive of developer overhead, GC overhead/fee and financing costs?
financing costs--yes. GC overhead/fee-yes, in the sense that we award jobs to third party contractors and underwrite those items as just part of the base hard costs.
does the 2% developer fee include costs such as general conditions, GC Fee, soft costs, closing costs, insurance and contingency etc.?
We take 4% developer fee on everything less developer fee and sometimes land unless we source the deal. Our GC’s typically get 3%. Per your question above, the short answer is yes. We manage/take the risk for coordinating all of these items and prefer to take a fee on them. Reimbursables is somewhat negotiable but the reality is most of the time reimbursables are a required part of any job (almost like a developers general conditions if you will) but are subject to a cap by the owner.
Thank you!
Does your firm reimburse salaries back to the project? (For those working on the project)? It’s interesting - I’ve seen a few firms do this where there is a dev fee plus salaries as a separate line item. It makes sense to me but many firms don’t do this.
We rarely get direct personal expense reimbursement as it’s own line item. Most LPs think fee should pay for that (which it does and some).
so when do you account for a GC fee and a developer fee?
1. If you are a developer and a GC - how do you break down the fees? What are the %'s
2. If you are a developer and hire a 3rd party GC - how do you allocate the fees here? What are you entitled to?
Thousand ways to skin a cat but for us we have in-house construction management that oversees the construction process and the GC we hire on the project. Typically we’ll charge a 3% fee on hard costs net of land and a 1% development fee on the same costs. Only difference is the development fee is paid monthly as soon as you close on the land whereas construction is tied to your construction draw.
We don’t typically split fees with the GC as that’d be tough to slide past any semi- sophisticated capital partner and is tough to do in a bull market when GC’s already have a healthy pipeline. What I have seen is developers hiring a third party construction manager to oversee the GC and then splitting fees with them.
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