Refinancing During Apartment Syndication

[Jordan Santiago]

Hey BP,

So for anyone that has successfully syndicated large multi family, does anyone refinance, get their investors capital back, and then change the equity ownership percentages? 

Say it was originally 30% GP, 70% LP, and then after the refinance it becomes 70% GP and 30% LP. I know some people do it and are very successful with it, but how often does it happen and work?

Any pros/cons on it or tips/advice? Thanks!

[Enrique Huerta]

@Jordan Santiago

This is very common practice. It’s called a promote/carried interest and is part of the investor waterfall. It happens at sale or at refinance if you’re able to pull out enough capital to exceed the negotiated waterfall.

Your specific example is not common and highly unlikely, but the general concept is doable.

I typically see 8% pref paid pari-passu (90% LP/10% GP), return of Capital pari-passu, then an 80% LP and 20% GP from an 8% to 15% or so and at that point there would be a “promote” and the GP could be at 30% and the LP would be at 30%

These numbers and hurdles are all negotiable. The above is just one example I’ve commonly seen.

Hope that helps. Let me know if you have any specific questions.