Real Estate GP vs. Sponsor vs. Syndicator: Gain Clarity on the Differences
Somewhat confusingly, General Partner (GP), sponsor, and syndicator are all used interchangeably in the real estate industry. GP, the sponsor, and the syndicator seem to refer to the person or entity leading a real estate deal. In this article, I will clarify what they actually refer to, what the role of each is, and what to look out for in any real estate investment opportunity.
Real Estate as a Team Sport
Real estate is a team sport that requires various professionals to work together to successfully acquire, maintain, and rent out properties. Even small projects require the expertise of a team that will include real estate agents, lawyers, and mortgage brokers. In contrast, larger projects require even more specialized professionals, such as plumbers, electricians, and leasing agents.
The need for a team becomes even more pronounced as the scope and dollar amount of a project increases — this is particularly true for ground-up construction projects, value-add projects, and large-scale acquisitions.
General Partner (GP) in a GP/LP Structure
The team leader, also known as the General Partner (GP), is at the center of any real estate team. This individual is responsible for leading the team and ensuring all members work together towards a common goal. GP refers to a general partner in a GP/LP structure, where the assets are purchased and owned by an LLC or General Partnership. This structure allows the GP to manage the assets while limited partners (LPs), as passive investors, provide the bulk of the funding to acquire the deal.
GP versus Sponsor
GPs are sometimes also called the “sponsor” of the deal. The term “sponsor” connotes the idea that this person or company works the entire process, from finding the deal to exiting it and everything in between, including any capital raising, bringing the team together, overseeing day-to-day operations, and managing the relationship with the LPs. Note that the “sponsor” can also refer to the company through which the asset is purchased and managed.
GP versus Syndicator
GPs are sometimes also referred to as syndicators. In this role, the GP is responsible for organizing a group of investors to pool their resources together to invest in a real estate deal, allowing the GP to leverage their expertise and relationships to access more significant deals.
Can the Real GP Please Stand Up
It is important to note that not all real estate syndicators, GPs, and sponsors lead the real estate deal – sometimes, rightly or wrongly, their role is limited to simply raising capital. Be sure to ask about the exact role of the person in the deal beyond the title.
The Real GP
For clarity, when I refer to GP for the rest of the article, I am referring to the team lead, who is chiefly responsible for all aspects of the deal, rather than someone who is, in essence, just a capital raiser. The buck must stop somewhere, and if there is no clarity about who the main person is, look for another deal to invest your hard-earned dollars.
Particularly true for complex deals, solid and trustworthy leadership is essential to the success of a real estate project. It is crucial to evaluate the GP’s knowledge, experience, and track record in the industry, as well as their understanding of the deal’s specific asset class, market, and financials.
Motivations of the GP
Motivations are also essential to understand. The GP may make money from the deal through fees and management of the asset, but unless they also have their own skin in the game, they may not be as motivated to achieve the best outcome for the LPs. Therefore it is crucial to carefully examine the terms of the deal and how much the GP has personally invested in the project. Make sure that the motivations of the GP align with those of their LP investors.
In conclusion, real estate is a team sport requiring various professionals to work together to achieve success. The GP is the team leader who plays a crucial role in this process. It is essential to carefully evaluate their knowledge, experience, track record, motivation, and alignment with the LPs. By doing so, LP investors can ensure that they are working with a solid team that can achieve their goals.
Invown helps real estate sponsors, syndicators and GPs raise money form many more LPs.