Typical LP Structure right now
What is a “typical” LP structure right now? Pref? Waterfall? Hurdles?
I’ve heard, pari passu
80/20 to a 10 IRR 70/30 to a 12 IRR 60/40 to a 15 IRR
Does this sound “in range?”
What about pref?
Coming from an owner operator who mostly does things at 100% ownership, but have an interview with an LP shop next week.
There really isn’t anything typical. It’s all negotiable and also depends on the fees of the deal.
Be more specific...Core, Value add, Opportunistic/ground-up...Fund, JV?
As others have said, you really need to be more specific to answer this. Right now it's like your asking what the right price for an automobile is.
I guess I’d be looking for guidance on all strategies.
What I put forward would be for heavy value add.
Heavy value add - you're looking at a pref in the 8-11% range depending on product type, but most likely a 9-10% pref, and then typically at an institutional shop they will ramp up from 20% true promote, to 30%, and then to 40%. So I'd say:
-Pro rata to a 9%
-20% true promote to a 12-14% and maybe an equity multiple of some kind here.
-30% true promote to a 15-18%
-40% true promote on everything remaining
That being said, I've seen 50/50 over an 8% for heavy value-add MF, so again, it's all over the board.
Depending on market, this many hurdles is not what I'd call typical. I usually see a pref (8-9%), 20% promote to 12.5%-15%, then 30% thereafter.
But again this varies heavily by market, product type and investor profile.
@CRESF - when you say true promote do you mean an ownership shift of 20% (i.e. if GP has 10% ownership share, they get 30% of cash flows after the pref is hit, as compared to getting 20% of the LPs 90% of cash flow which equates to 18% of total)?
At a large regional developer, right now capital is abundant for Multifamily which is our main product type, obviously a lot of different structures but we typically do either Pref Equity to 90% at a 12-14% rate then will split the top 10 in a 90/10 with a 10% hurdle and then a 40% promote above that hurdle
Our alternate cap structure is the typical 90/10 split on the top 35% and this will be a 9% pari pass hurdle, then a 70/30 profit split to a 12% and then 50/50 split above a 12% hurdle
Are you on crack?
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