Developer fees are one of the major sources of revenue for most, if not all, nonprofit affordable housing developers. These fees are paid to compensate for services related to the development and construction of affordable housing. Fees are generally paid during the development/construction process either from equity or debt sources or deferred and paid from cash flows from operations. The fees are paid either to an entity related to the nonprofit parent organization or to the non-profit parent directly.
Under current accounting guidelines, developer fees are eliminated when preparing consolidated financial statements. This paper dives into the questions of:
- How should the developer eliminate the profit realized on the developer fees?
- How should the developer determine the profit and does it matter if the developer fee is deferred?
- Should only the deferred fee be eliminated and not the fee paid from third party sourced debt and investor equity