Real estate capital raising and syndication

What is the typical GP LP split in multifamily syndication?

Money often wants half of the back end

The split depends on who is in the deal and what each side brings. I should say up front that my examples come from co-GP and joint venture deals, not a syndication with dozens of passive investors. The mechanics are close, though. Actual numbers are usually worked out with an attorney.

Here is how I think about the pieces. The person who puts in the cash usually gets a preferred return first. That pays them for the time their money is deployed. A typical figure I have seen is 8% on a mixed-use project. On a million dollars, that is $80,000 a year. Whatever profit is left over is the back end, also called the promote. That is the part that gets split.

In this clip I explain the preferred return, the back end profit and how the split with partners usually works.

How the sponsor share shifts as deals get bigger

Most of my own deals have been about a 50/50 split with my partners. As deals get bigger and more institutional in quality, 20 or 30% on the back end is more what you could expect as the sponsor. That sounds smaller. But it is all relative. When you are looking at $10 million in profit, a smaller percentage can still be a large dollar amount.

So the percentage tells you very little by itself. A smaller share of a much larger deal can pay more than a large share of a small one. Look at the pref, the dollars involved and the work each side does.

When a first deal breaks the usual waterfall

On my first deal with one partner, we did not use a typical waterfall split. He put a very high preferred return on it because it was our first deal together. Then I got 100% of the promote after the pref. He did that to de-risk his own return. He put in all the money and signed on the debt. The deal ended up at a 78% IRR, and I made about twice what he did.

Here I walk through that first co-GP deal and why the structure paid the way it did.

That partner and I are now on our fifth project together, about $125 million in total. The first deal was a good template for us. It also shows that splits are negotiated. They are not fixed by some rulebook.

On an industrial deal with a different partner, they provided the debt and equity. We split the developer fee and the GP side of the equity contribution. The LP capital came in at a 7% pref. We split the promote above that.

Questions to settle before you pick a number

Before you fix a split, get clear on who signs the debt, who does the day to day work and how much track record each side has. A first deal together often looks different from the fifth. Many sponsors who take money from outside investors talk to a securities attorney about how to structure the offering and what to communicate. I am not giving legal or investment advice here. I am sharing what I have seen in my own deals.

From the Family Office Club stage

One structure I have used is a simple return of capital first. On one deal a single investor came in and filled the whole deal. Any dividends or returns went back to that investor first until all of their money was back in their pocket. Then the money came back to me for the portion I had put in. Only after both sides had their capital back did we split the remaining profit based on the equity split in the deal. It is worth asking in any negotiation who gets their capital back first, because that order matters as much as the percentages.

From the source

• A typical preferred return I have seen is 8% on a mixed-use project, which pays $80,000 a year on each $1 million invested.
• In my experience, on larger, institutional quality deals the sponsor often gets closer to 20 or 30% of the back end profit.
• My first co-GP deal gave me 100% of the promote after a high pref and ended at a 78% IRR.

General education only. Not legal, tax or investment advice.

Talk to a securities attorney to explore options around offering documents, co-GP fee splits and investor eligibility rules. Do not use AI to write your own legal agreements.

What to do next

1. Write down who brings the cash, the debt signature, the deal and the day to day work.
2. Pick a preferred return range and test it against your deal's projected returns.
3. Decide how the back end splits and whether the split changes as returns rise.
4. Many sponsors have a securities attorney look at the structure before approaching investors.
5. Put the final split in writing, often with help from an attorney.

Follow-up questions

Related questions

• How do I raise capital for a mobile home park?Raise capital for a mobile home park by teaching investors why the asset class works before you ask anyone for money.
• How do I create a real estate investor presentation?Build it around the investor, keep it short, and make it look clean.
• What do 1031 exchange investors look for in a syndication?1031 exchange investors look for a deal they can understand quickly, a structure that fits their exchange deadlines, and a sponsor who clearly knows how exchanges work.
• How do I structure a real estate syndication for investors?Start with a clear split between sponsor and investors.

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