Project vs Partnership CFs
Can somebody generally explain the correlations between project, GP, and LP cash flows for value add multi family?
As I’ve always thought about it, the GP cash flow for a successful project is typically higher than the project cash flow, while the LP is typically slight lower than the project cash flow (assuming project is successful and the GP is “in the money.”)
Is this right?
That's correct. You're assuming that there's a JV in place in which the GP is promoted beyond the preferred return of the LP with a disproportionate share of the cash flows based on partnership/deal level returns, whether IRR/EM/CoC/etc. The magnitude of the cash flow to the GP will be dependent on the partnership/deal level return profile - the more the deal earns, the more the GP will earn. Assuming the GP is 1-20% of the deal, this could lead to outsized returns. The LP is willing to dilute themselves for the sake of incentivizing the GP - they're happy to reach the pref and anything over is an added bonus.
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