Leveraging a Co-GP Structure to Create a Positive Cashflow Real Estate Development Business
Assume a project cost of $100 million, comprised of $40 million in equity and $60 million in debt.
On a 90/10 split of the equity, the PE (Private Equity) Fund/Investors would provide $36 million of the $40 million needed in equity.
This leaves $4 million to be provided by the General Partner (GP).
If the GP brings in a Co-GP at a 90/10 split, that means the GP will need to provide 10% of $4 million, which is $400,000.
Assuming 3% development fees on the total cost of the project that go to the GP, this means that $3 million in fees are generated by putting the deal together, and only $400,000 needs to be put in. This is how one creates a positive cash-flow multifamily development business.
The Co-GP benefits by not having to do any work, not having to find the deal, receiving LP-level returns, and getting 50% of the GP promote. This way, the Co-GP's returns are better than the LP's returns.
Can you explain a couple things? What would be the expected return for the LPs? What would the expected returns be for the 90% co-GP? How do you split the promote? Does the GP make their windfall just on fees, and any of the promote is just gravy?
Can you use actual cash values in your explanation?