What % of the equity are GPs putting into deals these days? Whats the minimum?

My buddy at a real estate IB said that around 10% is normal for GPs to be putting into deals, but I just wanted a sanity check on that. Would 5% be considered low for a new-build boutique hotel?

Comments (11)

Feb 6, 2019

Yes, 5% would be low for a boutique hotel. For small to medium sized projects, LPs are looking for 10%-25%. For larger deals, 5% seems OK, but not too much lower.

Feb 6, 2019

Multifamily here. 95/5 and 90/10 are both pretty typical.

Feb 6, 2019

We usually like to see a minimum of 10%. Anything less can be problematic when: (1) The GP's equity can be recouped via fees and (2) if the GP is contributing land, they are contributing it at a stepped up basis, which means they have even less equity in the deal than what the JV Equity agreement states.

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Feb 7, 2019

How much equity do GPs typically put in a deal when contributing land with a stepped up basis?

Is this a smarter approach? Any other solutions when the value of land has appreciated, yet GP doesn't want to contribute land?

Feb 6, 2019

Yeah, I'm a day or two away from being under contract with a buyer on a 30 unit value add deal. Well known equity player would go 90/10 or 95/5 on this deal.

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Feb 6, 2019

You talking absolute minimum? We've done deals with a GP buying in at 50 bps. I'm pretty sure they syndicated half of their equity to another shop too without telling us

Otherwise 95/5 is more common and occasionally 90/10 for ground up dev

Feb 7, 2019
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