What is a co-GP in real estate?

How a co-GP deal is structured

Most syndications have one lead sponsor, but larger or more specialised deals often have several. The co-GP joins the general partner entity, or sits beside it, and shares in the work and the economics. The investors, the limited partners, usually see one offering and one set of fund documents; the split among the sponsors is a GP-side matter.

That makes the co-GP different from a co-investor. A co-investor puts money into the deal as a limited partner. A co-GP takes part in running it and is paid for that, in addition to any capital it contributes.

• GP vs LP
• Sponsor co-invest

What a co-GP can bring

Co-GPs are added for something the lead sponsor lacks. Common contributions include:

• Capital for the sponsor’s own co-invest alongside the investors.
• A balance sheet, so the co-GP can sign or support the loan guarantees a lender asks for.
• Operating or construction expertise, or a local presence at the property.
• An investor base the lead sponsor does not have.

The split: fees and promote

Economics flow to a co-GP two ways. The first is a share of the sponsor’s fees, such as acquisition, asset management and disposition fees. The second is a share of the promote, the performance-based carried interest the GP earns once investors have been paid their preferred return and capital. How the split works is a business term between the partners, and nothing in the rule book sets it.

Because the investors do not see the split, it is easy to leave it in an email thread. Write down each partner’s role, what each may approve or see, and each partner’s share of fees and promote before the raise. Then record the GP side of each distribution the same way, so it is not rebuilt at sale.

• Promote
• Syndication fees
• Carried interest

Questions to settle between sponsors

A co-GP agreement is short on law and long on specifics. The questions that cause disputes later:

• Who is the manager of record, and who can remove whom, and for what cause?
• Who has final say on the business plan, the sale and the refinance?
• Who signs the loan and stands behind it personally, and how is that risk compensated?
• What happens to a partner’s share if they leave the deal?
• How are fees and promote shared if the deal underperforms, and in what order are they paid?

A note on raising capital

If a co-GP’s main job is to find investors and its pay depends on how much it raises, that arrangement can raise questions under securities law. This page is general information, not legal advice. Take that question to securities counsel before you sign.