In the deal that I've been posting about, pertaining mostly short-term rental properties, the GP is saying it's tough for them to get a mortgage without their LPs co-signing to be on the recourse loans.
I'm not sure whether that's standard at all or totally wonky.
Can’t comment on how common it is, but as an LP, I’d probably want an indemnity from the people behind the GP in the event the bank comes after me. An indemnity from the GP itself (as opposed to the people behind the GP) wouldn’t be effective because the GP typically will be a corporation created specifically for that project and won’t have any assets.
I’ve heard of it before although this was to fulfill the net worth requirement on a non-recourse loan with the bad boy carve outs. The GP offered us a few extra points on the preferred return in exchange for allowing him to use our balance sheet. We ended up not taking him up on his offer but I think that you could structure this in a way that is beneficial to both parties. As the LP investor, my two main concerns here are 1) what do I get in exchange for allowing the GP to use my balance sheet and 2) do I trust these guys not to fuck up?
This is atypical. I'd imagine there would be some quid pro quo if implemented.
It's not usual but it's not unheard of. There's a deal we recently did involved a 2.5% Guaranty Fee. Anything between 1-3% is normal. There are other methods of compensating the LP Guarantying the loan but this is the most straightforward.
If the LP is stupid, sure it is
It's uncommon, but I've seen it happen. I've also seen a Co-GP be brought in.
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