Reallocation of Economics After a GP Member Withdrawal
A real estate fund is three years into its investment period. The founding team has three principals. One of them announces she is leaving to start her own firm. The remaining two face an immediate and uncomfortable set of questions. What does she keep? What do they keep? Who gets the carry she was supposed […]
Priority Repayment of GP Capital Contributions in Real Estate Fund Structures
A limited partnership agreement runs to 120 pages. The distribution waterfall is three of them. Those three pages determine who gets paid first, who gets paid next, and when the sponsor begins earning the promoted interest that represents the primary economic rationale for building the fund in the first place. Most sponsors and their counsel […]
Clawback Obligations at the GP Member Level: How the Obligation Flows to Individuals
A real estate fund exits its first three investments at strong returns. Carry is distributed to the GP entity, which in turn distributes it to the individual principals according to their internal allocation. The principals pay taxes on those distributions. Several years later, the remaining portfolio underperforms significantly. At fund liquidation, the cumulative waterfall calculation […]
Forfeiture of Promote Upon Departure: Good Leaver vs. Bad Leaver Frameworks
A real estate fund closes its first institutional raise. Two founding principals split the promoted interest equally. Three years into the investment period, one of them leaves. Maybe the departure is amicable, the product of a genuine life change. Maybe it is contentious, the end of a relationship that deteriorated over disagreements about deal strategy, […]
Vesting of Promote Interests: Time-Based vs. Deal-Based Approaches
A real estate fund closes. The GP entity has three principals: one who spent the prior two years building the investor relationships that filled the capital stack, one who sourced and underwrote the portfolio strategy, and one who will be responsible for asset management across the hold period. All three receive a carry allocation. None […]
Adjusting Promote Splits for Deal Sourcing vs. Asset Management Contributions
Two partners sit across a conference table, each convinced they deserve a larger share of the promoted interest. One believes the opportunity never exists without the relationship he spent a decade building with the seller. The other believes the return never materializes without the three years of operational execution she managed after closing. Both are […]
Feeder Fund Structures in Real Estate Syndications: A Legal Guide for Sponsors and Capital Raisers
A real estate sponsor closing a larger deal may find that the investor relationships required to fill the equity stack exceed what the GP’s direct network can support. One familiar solution is to admit more people into the GP structure, expanding the management group to accommodate additional capital-raising relationships. That solution has practical limits. As […]
LLC or LP? Choosing the Right Legal Structure for Your Real Estate Fund
One of the first decisions a real estate fund sponsor makes is also one of the most consequential: what legal entity will the fund use? The question typically comes down to two options. The limited liability company and the limited partnership are the dominant structures for private real estate funds in the United States, and […]
GP Capital Contributions: How Much Skin in the Game Is Enough?
There is a telling asymmetry in how most real estate fund conversations unfold. LPs spend considerable time evaluating the sponsor’s acquisition capabilities, asset management track record, and market expertise. The sponsor spends considerable time explaining why the deal thesis is compelling. But at some point in the diligence process, an experienced LP will ask a […]
Marketing a Real Estate Offering Without Violating Securities Laws
A real estate sponsor preparing to raise capital for a new fund or syndication will spend considerable time on the pitch: the investment thesis, the market opportunity, the property-level analysis, the projected returns. All of that work is essential. What often receives less attention, and what generates the compliance problems that are most expensive to […]