How to Structure Co-GP Relationships for your Real Estate Syndication or Fund

Co-GP deals are all the rage right now. Each deal is different, but often one party brings working capital (and an LP commitment) and the other party is the active sponsor.

Here’s what to consider:

Capital Commitment.

How much capital will each party commit to the underlying fund or syndication? Does this capital pay reduced fees or carried interest? Is either party going to contribute working capital to the management company?

Carried Interest.

How much carried interest (share of the profits) will each party receive in the fund or syndication? What about future funds and syndications? Does the percentage change?

Management Fees.

Does each party get a share of the management fees earned from funds and syndications?

Vesting.

Are interests in the ManCo and GP subject to vesting? What happens if someone leaves voluntarily? What if they commit a “bad act” like fraud?

Control.

Who has management control? If one party is the manager, what major decision rights and minority protections does the other party have?

Redemption.

If one party leaves, should the remaining parties have the right to buy back the departing party’s interest?

Future Funds/Syndications.

Is each party given the right to invest in future vehicles? If someone doesn’t invest in a future vehicle, do they lose their rights to future carried interest and management fees?

Restrictive Covenants.

Are parties bound by non-competes, non-solicits, and other similar provisions? If so, for how long? What are the remedies?

Time and Attention.

Does each party have a time commitment? Are they allowed to have outside business interests? What happens if a party stops paying attention?

Marketing and Track Record.

How are press releases and marketing handled? When the parties go their separate ways, can each party use the fund’s track record?

The Process.

Often, the parties will begin by drafting a term sheet that outlines the main aspects of the co-GP relationship.

Next, the lawyers will help draft long-form documents memorializing their agreement.

Finally, the co-GPs will work together with their lawyers to draft the fund documents, which are the agreements between the co-GPs (on one hand) and the LPs (on the other hand). At this point, the co-GPs are on the same side. For more information on how to structure a co-GP relationship for a syndication or fund, please reach out to expert syndication attorney, Shams Merchant, at sham@mwfirm.com or 832.451.2594.