We often speak in our articles about multifamily investing being a team sport. However many people are unaware of who the key players are in a multifamily syndication and where they might fit into the picture. Today, we will look at a few of these primary roles and discuss the value which they bring to a multifamily syndication.
Limited Partner (LP)
Most people recognize that real estate is a great place to invest their money, however many lack the experience or desire to acquire and successfully operate an actual property. If this sounds like you, then perhaps the role of limited partner or LP is a good choice. Limited partners, as the name suggests, have no liability outside what they have invested in the property and also have no responsibility for running it. It is therefore important for limited partners to thoroughly vet the general partners and specific deals in which they invest. As a limited partner, you have the opportunity to receive an excellent risk adjusted return for your money invested without having to worry about the headaches that often come with actively investing in real estate.
General Partner (GP)
If you like the idea of being involved in the business plan development and execution of a multifamily project then the role of general partner or GP might be for you. The general partners on the team are responsible for all the items that one would associate with the "sweat equity" portion of a project. While they may likely (and typically) invest money into the property as well, these particular shares are awarded specifically for the work put into the project. Examples of tasks that general partners would do include sourcing the project, developing the business plan, executing the business plan after closing, sourcing and signing on the loan and working with the investors (limited partners) on the deal. The most important thing to understand about the role of a general partner is that (unlike a limited partner) they have risk and liability on the deal in excess of the money they have invested. The biggest portion of this liability being their guarantee on the loan. The amount of preparation and education required of a general partners is therefore much greater than that of a limited partner.
Key Principal (KP)
When you are looking to source a loan for a commercial property there are a number of different requirements that must be met. The most common three are a certain level of liquidity, certain amount of net worth and a certain level of experience with the particular loan which you are using. For some teams, these requirements might already be met by the members of the general partner team. However, sometimes there are gaps in one or more of these three areas that require an additional partner. This additional partner is often called a key principal or KP. Their involvement in the actual business plan of the project may be minimal or extensive, but their primary purpose is to ensure that all the requirements of the loan are met without issue.
Third Party Team Members
While the roles above are the key team members who have ownership on a multifamily syndication, it should be mentioned that there are numerous third party team members who do have involvement. These include a real estate attorney, property manager, CPA, tax consultant, contractors, etc. As a general partner, it is important to develop relationship with these vendors early on in order to ensure that your team is capable of executing the business plan that has been underwritten.
There are many important considerations when evaluating a multifamily deal and we make it our mission to careful vet each of these items. If you would like to learn more about passively investing in multifamily, please set up a meeting with us through our Calendly link and subscribe to our weekly blog here.