Syndications: General Partner vs. Limited Partner

[William Coet]

Hello,

Specifically wondering what advantages the General Partner(s) has compared to the Limited Partners....

Thank you in advance for any insight.

[Justin R.]

A general partner is doing the work. They create the team and a plan, acquire, due diligence, take care of loan products (If needed), oversee construction/renovation, hire property manager (or run in house management,) take care of accounting/taxes/K1s, deal with closing or refinancing.

An LP (limited partner) just puts in the funds (after hopefully vetting the GP and team) and keeps fingers crossed while earning mailbox money. 

To answer your question, the advantage the GP has is control, and the ability to gain wealth from their equity position (hopefully not so much for asset management fees) by selling at a big gain. 

[Justin Moy]

@William Coet The GPs are active and the LPs are passive. So depending on which of those you see as a benefit, you'll likely prefer one or the other. 

Legally, the GPs take on the liability of the project including things like signing on and qualifying for loans. They also are making all the decisions on the property. 

LPs are responsible for sending their equity before close, keeping their banking info up to date in the investor portal, and checking out the quarterly updates. 

In exchange, the GPs will get more equity or potential upside per member (makes sense, they are taking on more personal liability and all the work). 

[Gino Barbaro]

@William Coet

GPs are signing on the debt, finding, managing and running day to day. They get compensated with fees and equity in the deal. Their advantage is they get equity in the asset for not putting in capital. They control operations.

LPs are passive. Their liability is limited to the deal itself. Once they find an opportunity, they invest in the deal, and their obligation is usually over. To some, that's an advantage. To others, they would like to have more control.

I think the goal of many is to build enough equity by being a GP to ultimately become an LP.

Gino

[Chris Seveney]

Quote from @William Coet:

Hello,

Specifically wondering what advantages the General Partner(s) has compared to the Limited Partners....

Thank you in advance for any insight.

What type of advantages and disadvantages are you trying to understand? Think of this similar to how you would invest in Apple stock. You are an investor and the GP is the company board and management. They make all the decisions, typically get paid no matter what and you rely on them. 

[Sam Applegate]

@William Coet

General partners (GPs) manage the entire investment process and are actively involved. They often pay themselves various fees, such as asset management fees and acquisition fees. Additionally, they may include a carried interest or promote structure on the back end, which serves as an incentive or commission if they exceed performance expectations.

Limited partners (LPs), on the other hand, simply invest capital and remain on the sidelines. They receive their monthly or quarterly distributions without being actively involved in the management of the investment.