LP investment question
Hello, looking for some guidance on a potential LP opportunity. Original materials said GP would contribute around 35% of the equity. 7.5% preferred return then 70% (GP) / 30% (LP) after pref. On refi or sale it goes to 75% / 25% after 15% IRR to LP.
what are overall thoughts on this structure? When I ran the waterfall I was ok with it even though it seems unique. But I think a GP putting in this much capital is unique (at least to me). However, as we approach the funding date, I asked the GP what the latest projections for the capital stack were. He stated the GPs may only be in for 25% of the equity now. Does it make sense for the GP to still be receiving 70/30 or 75/25 if they are putting in less equity?
thanks for any help.
Would you be able to provide guidance on the context of the deal.
~$10m multifamily deal, < 100 units, value add, 35 mins outside of a major sunbelt market
Does this mean LP as in pension fund, or LP as in allocator manager, with GP being the operator / developer ?
It’s a small deal. The GP is a local broker who is sourcing/managing the deal. LPs are just friends and family.
In multifamily these are actually very LP favorable terms and the GP is putting in pretty substantial equity. We have plenty of deals where we are putting in 10% or less and are structuring it as a 6 or 7% pref, 70/30 over the pref to 50/50 over 15%. We have never had a hard time raising capital.
Thanks. Just to be clear it’s 70%/75% to the sponsor not the LPs. I think the minimum 15% irr gets me to a decent place, but do you still think these are favorable splits to LP?
You sure it’s not the other way? Seems super off market to me but I’m still learning
Ok no that's weird. LP should for sure be getting the larger share unless the GP was putting up a greater share of equity than the LP. I'd run from that deal.
Have not done a deal with 25-35% GP equity, but typically do around 9 pref with more GP favored terms after pref than what you described.
You guys ok? These terms are fucking ridiculous.
8-9 pref
20% to a 14-16%
35% to a 18-20%
40-50% thereafter
To be clear these terms are more favorable than I would typically give, but since it’s a small time syndicated style deal gp will get more favorable terms.
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