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The most common thing I’ve seen is last in first out waterfall structures, (i.e, LP contributes capital after the GP but before the senior), and get their return of capital and pref before GP gets a catchup.
I’ve also seen cost overrun guarantees where the GP guarantees x dollars, provided the LP doesn’t cause any of the cost overruns.
I think the most important think you can do as an LP in a dev deal is invest in shovel ready projects that have pre lease contracts with investment grade tenants, and size your exit to ~200 bps above the prevailing market cap rate.
Thanks for this. Really helpful.
Lol why would any GP sign up for this
These are pretty standard institutional LP terms. Keeps GP incentivized to perform. GPs are already getting substantial fees through developer fee, promote, etc.. I think the better question is why would an LP put up 90% (or something similar) in a structure where the gp gets their money back plus dev fee & other then leaving them without incentive if shit hits the fan.
I'm sorry let me get this straight for a second - you're trying to tell me that GPs personally guaranteeing LP returns is "pretty standard"?
Lol the guy that made the comment deleted it cuz he must have surely realized how idiotic that is.
what hole did you crawl out of to troll me?
Maybe I missed it, but I don’t think anybody said guaranteeing returns. The comment was about guarantees on cost overruns.
If you’ve seen one partnership agreement, you’ve seen one partnership agreement. Scrappier developers are sometimes willing to agree to farm less favorable terms if they have 1 or 2 projects and their livelihood depends on it. LPs may feel more comfortable investing with a scrappy developer under aggressive JV terms depending on their sophistication and ability to step in. It’s sort of a “heads I win, tails you lose” approach, but done through structuring.
I usually require GPs to name their next child after me as well as part of the term sheet.
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