Construction Syndication -

5 Replies

On a ground up development deal - are construction costs split pro rata between the LP and GP?

If LP put in 90% of the equity, do they contribute 90% of the construction costs?

Is it the GPs responsibility to obtain the financing etc.? Thanks

Originally posted by @Yaya Y. :

On a ground up development deal - are construction costs split pro rata between the LP and GP?

If LP put in 90% of the equity, do they contribute 90% of the construction costs?

Is it the GPs responsibility to obtain the financing etc.? Thanks

 The GP would get the construction financing and supply the 10% equity in your example. The LP is simply a passive equity investor.

@Greg Dickerson

Thanks. So essentially what I wrote is correct? GP contributes 10% of the equity on the purchase price then 10% once construction commences?

I’m specifically talking about how the constructions costs get paid out to the lender. Thanks.

Originally posted by @Yaya Y. :

@Greg Dickerson

Thanks. So essentially what I wrote is correct? GP contributes 10% of the equity on the purchase price then 10% once construction commences?

I’m specifically talking about how the constructions costs get paid out to the lender. Thanks.

The construction costs do not get paid out to the lender. The lender provides the funds. They will loan a percentage of the entire cost. The sponsor (GP) has to make up the difference however they choose. Either using their own cash or by raising the money from investors (LP) 

@Greg Dickerson in some of the ground up development syndications (where I invested as a LP with equity contribution), I noticed the GP showed a certain bank as the lender (contributing the debt part) in the documents but a few months later the GP sent a note saying construction financing is still being sought.

Is it normal for GPs to suggest they have a lender (either lined up or already provided the debt funds) while raising equity money from the LPs, and then later mention that the construction financing is still being sought? I’m also confused why bring the term “construction financing” now instead of just saying “lender”, which is what the debt contributor was originally called. Or am I missing something?