Karoline.Realtor

I spoke to an investor (who’s invested in $300,000,000 worth of developments) about how they structure their syndications.

Here’s 2 structures they used in recent offerings:

1) The project: a $54,000,000 build-to-sell neighborhood.
• They were approached by an investor with $3,000,000 in a 1031 exchange.
• With build-to-sell deals, you aren’t allowed to use 1031 money.
• So they structured the deal to accommodate the difference.
• The investor’s tax burden was $600,000.
• They decreased their split & gave him more as if he gave the additional $600,000.
• The original profit split was a 40%/60% LP/GP split.
• They flipped the original profit split to accommodate the tax loss.
• So the split became a 60%/40% LP/GP split.
• The preferred return was 10%.
• 100% of returned capital before LP/GP split.

2) The project: A $16,400,000 33-unit townhome build.
• The capital stack is as follows:
• The LP receives 100% of the distributions up to a 12% preferred return.
• The preferred return is paid to a limited partner
↳prior to the GP receiving capital contributions.
• After the 12% preferred return is hit,
↳the LP/GP split goes to 70/30.
• The next hurdle is a 20% preferred return,
↳at which the LP/GP split goes to 50/50.

P.S. Curious to hear the capital structures you're using in your deals?