Promote Question
If a RE firm raises a fund from a group of investors and invests that money as GP alongside a larger LP, how does the RE firm itself typically get paid promote? I understand the basic promote for the GP/LP where the GP and LP are pari pasu up to a pref return and then the GP gets a bigger split of excess returns, but how does the actual RE firm (i.e. employees of the company, not investors in the fund) get paid promote and how is it calculated?
This is a 25% project level return on a $50MM investment with 55% LTC. The $6.2MM is the GP promote divided by GP team members. you get a % of promote, I get a range of 0 - 300 bps depending on my involvement and the firms mood, in this case $0 - $186K
Assuming that the GP put in 5% of the equity, is it pretty common for you guys to hit a 5.5x multiple?
not these days, in the past yes. The multiple would actually be higher for our CEO who takes most of the promote because we raise money for a large portion of the GP and pay them the same as the LP. It is fine though because the CEO takes recourse risk/development risk, it is pretty generous of him to give us any promote with that in mind.
THanks but I know how promote works with a GP and LP. My questions is how to employees of the RE company get paid promote. Does the RE firm put money into the fund with other GP investors?
The GP has the same returns as the LP, the promote is separate. We raise our GP separate from employees after employees invest all they want in coinvest/all that our LP requires. Coinvest and promote are different.
can somebody else answer.....
Getting spoon fed is too hard I guess.
i mean you didn't answer the question tho
You got your answer (undoubtedly for a homework assignment)
Don't be that way about it
Senior Chimp? My ass!
my question wasn't how GP/LP splits work, my question was how employees get promote
for example, if the fund is raised from a pool of outsid investors (GP) and partners with an institution (LP) where does the promote paid to employees of the firm (who don't have money in the GP or LP position) come from
I'm sure the answer is very simple I'm just not getting it
no, no you are not. Good luck.
That promote comes from 1 or 2 places.
1st place: GP partners with LP; deal has some form of promote based on the success of a project (a waterfall); that project generates a promote to the GP; GP shares promote with employees in some way shape or form (basis points, flat $ amount, etc.). I call this the Project Level Promote.
2nd place: The GP is promoting the GP investors (ig. the GP has a GP Fund). After a successful project exit, the GP runs an independent waterfall from the LP waterfall. The LP investors (normally) have no idea what this waterfall is, because that's the business of the GP and the GP investors. I call this the GP Fund Level Promote.
It's common for the GP investors to be double promoted, one at the Project Level with the LP, and then another at their fund level as being an investor in the GP. Sometimes the GP offsets this double promote by sharing some of the Project Level Promote with the GP Fund Investors (ig. the promote they earned off of the LP).
Cool, thanks
So lets get back to basics. If you are an employee, the likelihood is that you get paid something called a salary. You see, you trade your labor and skills and time for a fixed sum of money. You get paid this money by your employer. For most of us, this check comes every two weeks, or twice a month. That is called a pay period. Now, I know this is complex stuff, so feel free to read back through that a few times before we go on.
A promote, as @REPESailor2020" has mentioned, is what a GP gets for successfully executing their business plan. The LP pays this by taking a lesser portion of the cash flow over certain hurdles, as a way to incentivize the GP to do their job well. Guess what word we haven't seen yet? That's right, employee. Because guess what? This isn't your local grocery co-op. The partners in the GP are taking on all the risk of the deal, while still committing to paying the employees at their company. Thus, the employees get their contractual wages. Maybe even a bonus, which is a reward for doing an exceptional job. Since the employees are guaranteed pay and take no risk, they don't get a promote, except what the partners may choose to allocate. Say it with me: employees aren't entitled to a promote. A good maxim to keep in mind is that the people taking the risk, get the reward. The higher the risk, the higher the corresponding reward should be. Apply that to most things in your professional life and compensation structures will make more sense.
TL;DR - you won't learn a damn thing in school if you come on here demanding answers to simple questions and then accusing the person giving you that answer of not answering the question to your rather poorly phrased and imbecilic inquiry. You got an answer; if you don't think it answers the question, then you've asked the wrong question or fundamentally don't understand the subject matter. Incredibly, almost uniquely, I'd say, you've managed both of those things.
dude slow down i have an offer and they said i'd also be paid a % of promote i'm just trying to understand where it comes from
idk why you are explaining salary and GP/LP promote instead of just answering the question
thanks for typing like 5,000 words tho... sorry you don't get any promote =(
this seems unnecessary
I think @EliteStudent11" made another account, or another troll, screw you troll, we wasted valuable time and effort trying to explain something ... it is bull shit to do this to people that sincerely are trying to help educate those with sincere questions. Fuck off
you still never answered the question... i said in OP im not asking how GP/LP promote works im asking how the firm earns promote if all their money is from a raised fund and where the % share to employees comes from... then you posted an excel sheet showing what promote is
Ozy definitely wasted lots of time but it wasn't wasted trying to explain anything
and if you had even a sliver of the understanding you said you had with "I get how GP/LP promote works" then you would not have the question "how the firm earns promote when all or nearly all their money is from a raised fund"
Developer and REPE fund both receive a promote ... now go away ... you didn't have the understanding you said you had, and you asked the wrong questions.
Indeed. Always a shame to see college seniors fresh off a summer banking internship coming in here to shit on real estate investing. A lot more people making a lot more money in the RE business than in IB, you'd think the up-and-coming masters of the universe would have their eye on the prize and not the prestige...
Especially when so much of the content on this sub-forum is legit questions and people asking/responding with legit helpful information instead of 99% of the posts being about whether a GPA is good enough or what the compensation is at one bank or another.
Typical WSO IB User: "How prestigious is Goldman Tech M&A IBD?"
Typical WSO IB User: "I had a superday interview that lasted 2 weeks. Now how do I send a follow up to the managing director kissing their ass about how excited I am to do excel modeling for 100 hours a week"
Typical WSO IB User: "I'm so disappointed, I only got offers at Wells Fargo IBD and JPM. Will I ever be successful in life or should I consider doing an MBA at Ivy and leveraging that so I can massage Llloyd Blankfein's balls?"
What a roller coaster of a thread!
This is off topic and not directed towards OP but I hope the RE forum does not become watered down.
My initial worry started a few weeks ago when I saw Andy said our forum was the most active or visited (can't remember the exact statement).
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