Upside of Syndication Deals?

[Arturo Borges]

Hello BP Community,

I just wanted to gather some opinions on apartment buildings and syndications deals. What exactly is the upside on this deals as a GP? When do you as a General Partner make money? Do you actually make a monthly income out of these deals? Or is the real upside when you sell the property and distributions are made?

Looking forward to hearing from you guys!

[Annie Dickerson]

Hi @Arturo Borges, great question! The GP gets paid through a few different avenues: 

1. Acquisition fee (1-3%), paid upon closing

2. Asset management fee (1-2%), paid throughout the life of the investment

3. A cut of the cash on cash returns (often a 70/30 split, with 30% going to the GP), paid throughout the life of the investment

4. A disposition/capital transaction fee (1-3%), paid upon sale of the asset

5. A cut of the profits from the sale of the asset (often a 70/30 split), paid upon sale of the asset

All of these numbers can be tweaked based on the deal structure. I've seen the split as low as 90/10 and as high as 50/50. Many syndications offer a preferred return, so the first 8 or so % of cash on cash returns go 100% to investors, then GPs only get paid if there are returns above and beyond that (further incentivizing the GP to operate well). 

In my experience, investors typically want to know that the GP is getting adequately compensated. Of course, they don't want to get pelted by fees, but a reasonable amount to the GP assures the investor that the GP is incentivized to take care of the investment.