Our firm is exploring Co-GP structures with outside capital partners for future development projects. We are a vertically integrated development and general contracting company, self-performing construction and managing the entire process from design through operations. Given our disciplined approach and local expertise, we believe we are well-positioned to attract LP and Co-GP partners seeking reliable execution.
Ideally, we’d tie up land for a project, develop a feasible business plan, and bring in a Co-GP partner to share pre-development risk and costs. Once approved, we’d collectively secure an LP partner at a 90/10 structure, with the LP recapitalizing the Co-GP and GP contributions made during pre-development.
For example: if total equity required is $10M, we may need $2M in pre-development costs to reach a “shovel ready” state. We’d split this $2M with a Co-GP partner, and after securing the LP, recapitalize back down to our target $1M (10%) equity position prior to vertical construction.
One prospective Co-GP suggested their firm would evaluate their equity multiple based on their original pre-development contribution rather than the recapitalized basis. This naturally makes the deal look skinnier in that regard. This feedback left me questioning—if the Co-GP is fully or largely recapitalized at the LP entry, does it really make sense to measure returns off the pre-dev contribution rather than their adjusted basis?
I’d appreciate any thoughts or feedback, especially from those with experience in Co-GP structuring or similar arrangements. How do you evaluate deal metrics and risks in this type of structure?
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I’d find a Co-GP that's not just chasing waterfalls, but understands your investment thesis and brings something unique to the table. Maybe they've got killer relationships with the city planning folks, an additional technical skill that fills a gap in your execution skill set, relationships with LP capital providers, relationships with banks, and can sign on debt. Avoid partners who are difficult to vet.
Let’s talk about this equity multiple. I get where a Co-GP might be coming from, wanting to base it on their upfront skin in the game. But let's be real, after the LP comes in with their capital the risk profile changes. Once the LP waltzes in with their recapitalization, the game changes. Push for a calculation based on the final equity contribution – it's a fairer shake for everyone. Throw in the blended approach with a hurdle to sweeten the pot.
Structure the waterfall to incentivize everyone to hit it out of the park with competitive preferred returns, promotes, and a strong catch-up clause. Development deals can be a minefield, so make sure that Co-GP agreement is airtight. Lock down those responsibilities and decision-making in the Co-GP agreement - if you don’t want them in the day to day cus they’ll slow you down, clearly spell those tasks out. When shit hits the fan and decisions need to be made on change orders and RFIs..spell it out..no one wants a JV partner going rogue on a hot change order or a hot RFI that’s critical path to the project schedule. Keep it buttoned up, and make sure everyone's on the same page. Run the sensitivity analysis with a laser eye, stress test the numbers, and have a scenario A, B, C, and D for when things go sideways. Good luck brotha
Here’s a high level glance of a co-investment structure between a General Partner and a Co-General Partner in a development project.
-Capital Structure: 90/10 co-investment from CoGP on day one, 90/10 cost overrun sharing, 50/50 profit split.
-CoGP Benefits: Provides track record, LP relationships, experience/advice, and allows GP to retain majority of fees.
-CoGP Balance Sheet: Provides loan guarantees.
-Deal Flexibility: CoGP can provide quick "no" within 10 business days, allowing GP to explore other options.
-Decision-Making: CoGP has major decision-making power if providing significant GP capital.
-Limited Partnership Duration: Partnership for 2-4 years to assess compatibility.
-Renegotiation Option: Reasonable end date to renegotiate terms if needed.
Bump on this. Interested to see how other people structure cogps
Does the co-gp still have a % in the JV if they are fully recapitalized at vertical? Am i understanding that right.
If the Co-GP wants to measure returns off pre-dev then they don't get to participate in the promote with the LP. You would have 2 separate waterfalls in the GP-GP level cash flow. One where you sweep the promote from the LP-GP JV and one where you get promoted on the Co-GP on cash flow from the LP-GP partnership that was not part of promote.
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