How Do the $300M Equity Co-GP/JV Deal Terms Work for Real Estate Sponsors?

TL;DR

The co-GP program offers U.S.-based real estate sponsors 97.5% of the equity needed for qualifying deals, while sponsors contribute at least 2.5%. Sponsors retain property management fees, receive a 2% annual fee on equity, share specified transaction fees, and split the 20% promote with the program partner. The rigid term sheet, control structure, return targets, and capital-use rules are detailed below.

Transcript

hello my name is richard c wilson i'm the founder of the family office club and i'm also helping grow a co-gp program to invest in u.s based independent real estate sponsors and i want to record this video to explain how the program works this is for those of you who have been maybe reviewing the term sheet are about to review the term sheet or may... Read More

Key Insights

• 🥶 The co-GP program provides an opportunity for US-based real estate sponsors to access significant equity (97.5%) for various property types.
• 🤱 Sponsors retain property management fees and a two percent fee on equity annually, incentivizing their participation in the program.
• 🥳 The program partner has ultimate financial control over the assets, while the sponsor has day-to-day operational control within agreed budgets.
• 🥶 The co-GP program focuses on acquiring brand new assets with a value-add or expansion component, targeting an ideal 17% IRR and a five to eight percent cash-on-cash return.
• 👏 Sponsors can use their own capital or raise it from investors to meet the 2.5% equity requirement.
• 😑 The term sheet is pre-approved and non-negotiable, as it follows the same structure for all participants.
• 🔬 There is no penalty for not utilizing the allocated capital, and the 20% promote starts from the initial equity invested.

Questions & Answers

Q: How do the $300M equity co-GP/JV deal terms work for real estate sponsors?

The program may allocate $250 million to $300 million of equity for deals with a U.S.-based independent real estate sponsor. It provides 97.5% of a deal's equity, while the sponsor must contribute at least 2.5% and may contribute up to 10%.

Q: What types of real estate deals qualify for the co-GP program?

The program considers strategies including medical office buildings, multifamily, self-storage, industrial, office, and specialty healthcare real estate. It typically seeks brand-new, top-of-market assets that also have a value-add or expansion component.

Q: What fees and promote does the real estate sponsor receive?

The sponsor keeps the property management fees and receives a 2% annual fee on equity. Acquisition, financing, construction, disposition, and similar fees are split between the sponsor and the program partner, while the 20% promote is also split in half.

Q: Can sponsors negotiate the co-GP/JV term sheet?

The term sheet is pre-baked, rigid, and largely non-negotiable because every participant works under the same structure. Its terms are pre-approved by investment committees at both the publicly traded entity level and the partner's firm.

Q: Who controls assets under the co-GP arrangement?

The program partner has ultimate financial control and ultimate control over the assets because it supplies 97.5% of the equity. The sponsor manages day-to-day operations as long as activity stays within the agreed budget, which is primarily set by the sponsor and approved by both parties.

Q: How can a sponsor fund its required equity contribution?

The sponsor may use its own capital, raise the contribution from investors, or combine both sources. It can create its own waterfall for investor capital, and the preferred contribution range is 2.5% to 10%, with a 2.5% minimum for each deal.

Q: Is there a penalty if a sponsor does not use the allocated capital?

No penalty applies if the sponsor does not use capital allocated under a signed JV term sheet. The program also does not charge interest on unused capital, which the speaker contrasts with many institutional investment mandates.

Q: What investment returns and holding period does the co-GP program target?

The program seeks deals capable of producing a 17% IRR or better and ideally a 5% to 8% first-year cash-on-cash return, though exceptions have included 2%. Investments are typically held for three to five years, with five years described as typical and longer holds possible.

Summary & Key Takeaways

• The program provides 97.5% equity for US-based real estate sponsors across different property types, including medical office buildings, multi-family, self-storage, industrial, and specialty healthcare.

• Sponsors retain property management fees and a two percent fee on equity annually, with investment typically lasting three to five years.

• Fees are split between the program partner and the sponsor, and the 20% promote is divided between the partner and the program.