ERISA Plan Asset Risks for Real Estate Fund GPs and Management Companies
Consider a real estate fund manager who has successfully built a track record and is ready to raise an institutional fund. A pension fund allocator expresses serious interest and indicates it can commit $25 million, which would represent meaningful institutional validation for the manager’s platform. The subscription closes. The pension fund money is in. What […]
Broker-Dealer Risk for Real Estate Sponsors Receiving Transaction-Based Compensation
A real estate fund manager who raises capital directly from investors is doing something that looks, in important respects, like what a registered broker-dealer does. Both are effecting the sale of securities. Both are communicating with prospective investors. Both are receiving compensation in connection with those activities. The difference that determines whether the fund manager […]
When Does a Real Estate Fund’s Management Company Need to Register as an Investment Adviser?
A real estate fund manager who has spent years sourcing, acquiring, and operating commercial properties might reasonably assume that investment adviser regulation does not apply to what they do. They are buying buildings, not stocks. Their investors are real estate investors, not securities customers. Their fund holds fee interests in real property, not shares of […]
Balancing Cash Compensation vs. Back-End Promote in Real Estate Fund Structures
A real estate sponsor negotiating the economics of a new fund faces two distinct pressures pulling in opposite directions. The first is operational: the platform needs enough current income to pay people, maintain reporting systems, fund deal pursuit, cover compliance costs, and run the business between closings and exits. The second is reputational and legal: […]
Fee Streams in Real Estate Syndications: What Sponsors Earn and What Investors Should Understand
A real estate investor once described reviewing a syndication offering document as similar to reading a restaurant menu written in a foreign language. The dishes were listed, the prices were visible, but the ordering logic was entirely unclear. By the end, they were not sure what they had agreed to eat. Fee structures in real […]
Clawback Provisions: When and Why to Include Them
Imagine a real estate fund that exits its first three investments at excellent returns. The GP receives carry distributions on each. Principals spend a portion of those distributions, pay the associated taxes, and move on. Three years later, the remaining portfolio runs into difficulty: two assets are written down significantly, one exit comes in at […]
Vesting Schedules for Carried Interest in Real Estate Funds
A real estate fund can take a decade or more to run its full course. Capital is called over several years. Assets are acquired, operated, repositioned, and eventually sold on a timeline that rarely matches the one in the original underwriting. The people who sit behind the GP entity at the beginning of that process […]
Allocating Promote Interests Among GP Principals
Two sponsors form a real estate GP together. The conversation about who gets what percentage of the carried interest lasts about fifteen minutes. Both parties feel like the outcome was reasonable. One person writes a number on a yellow legal pad. Nobody puts it in a document. Three years later, the first deal is heading […]
Should You Use a Series LLC for Your Real Estate Fund?
A real estate sponsor who runs repeat deal-by-deal syndications faces a familiar administrative friction: every new offering requires a new entity. New articles, new operating agreement, new EIN, new bank account, new state registrations, new compliance calendar entry. Each new entity is its own legal box, which is the point of the SPV model, but […]
Designing a Sponsor Entity Structure for Long-Term Scalability
There is a version of this story that plays out with remarkable regularity. A capable real estate sponsor closes their first deal, then their second, then their third. Each closing is a success. The investors are happy, the assets are performing, the sponsor’s reputation in the market is growing. And then a construction lender asks […]