Transaction Costs

Transaction costs are the ancillary expenses and fees incurred during the purchase or sale of an investment – in real estate, these can include brokerage commissions, title and escrow fees, recording taxes, legal fees, appraisal costs, transfer taxes, and other closing costs. They are essentially the frictional costs of doing a deal, above and beyond the property price. For instance, a home seller might pay a 5-6% agent commission, and both buyer and seller face various closing adjustments and fees; similarly, an investor in a commercial property might incur due diligence expenses, loan origination fees, and attorney fees as part of the transaction. Transaction costs directly reduce net returns. For a high- net-worth investor, keeping an eye on transaction costs is important both at the investment level (how efficiently the sponsor handles buying/selling) and at the portfolio level (how often they themselves trade in and out of investments). Infrequent trading or long hold strategies, like those often employed in private real estate, tend to mitigate transaction cost drag by allowing the investment to compound without incurring repeated fees. Lightstone, acting as a sponsor, works to minimize unnecessary transaction costs for investors: for example, leveraging its scale to negotiate better loan fees or using in-house capabilities to reduce third-party costs (some sponsors charge acquisitions or disposition fees – investors should see these disclosed and kept reasonable). Additionally, the structure of Lightstone’s deals (private placements) means investors don’t face transaction costs like bid/ask spreads or frequent brokerage fees that one might in public markets – but they do indirectly bear the costs the partnership incurs when it buys or sells properties. By emphasizing transparency, Lightstone ensures that all these costs are clearly accounted for in the proforma and ultimately in the returns reported to investors. From an alignment perspective, a good sponsor will only trade (refinance, sell, buy) when it’s accretive to investor returns, not churn assets to generate fees. Transaction costs underscore why a thoughtful, longer-term approach can be beneficial (excessive trading enriches facilitators at investors’ expense). In summary, transaction costs are the “friction” in investing – Lightstone’s goal of a streamlined investing experience in part reflects an effort to reduce friction, allowing more of the profits to flow to investors as net returns rather than to intermediaries.