How My Partner and I Structured Our First Syndication
$264K Debt
$50K LP Equity (71%)
$20K GP Equity (29%)
LPs and GPs receive an annual 8% preferred return. Any excess cash is distributed pro-rata as a return of capital.
In the event of a refinance or sale (targeting 5-7 years), capital is returned pro-rata until LP and GP capital balances are brought to zero.
Once all capital is returned, excess cash is distributed in 50/50 proportion (GP promote).
Biggest lesson learned: always raise sufficient reserves.
While we did make sure to raise some extra cash, we should’ve raised a bit more in hindsight (it was uncanny how our gutters seemed to know to fall off the house as soon as we closed the deal).
Having a solid rainy day fund at the outset is well worth the marginally higher preferred return you’ll have to pay as a result.