What Is a Co-GP Fund?
In a commercial real estate transaction, the capital structure often consists of: common equity, preferred equity, mezzanine and senior debt. The common equity component is typically structured as a joint venture between an institutional participant providing the majority (often 85% – 95%) as Limited Partner or ‘LP’, and the balance co-invested by the developer, sponsor or ‘GP’.
Such ventures often feature an incentive mechanism with disproportionate sharing of profits. So, while a GP may only contribute 10% of the common equity, it stands to earn much more than 10% (often upwards of 50%) of the profits upon successful execution of the business plan.
The Partnership, in exchange for supporting GP’s co-invest capital requirements and facilitating more efficient growth of their business, provides superior return opportunity to investors without incremental risk.
The GP Fund expects to offer investors the following:
- Ability to participate in an Operator’s profit-sharing mechanism, generating outsized, asymmetric risk-adjusted return opportunities
- Access to institutional-quality assets, sponsorship and capital partners with minimal equity investment
- Investment diversification
- Attractive balance of current yield and capital appreciation potential