General Partner vs Limited Partner: What’s the Difference?
Understanding Roles, Risk, and Returns in Real Estate Syndications
Introduction
Real estate is often a team sport. Most large-scale deals—especially in commercial real estate—are structured through partnerships. Whether you're raising capital, investing in a syndication, or managing a fund, it’s essential to understand the roles of a General Partner (GP) and a Limited Partner (LP).
This breakdown explains the differences in responsibilities, risk exposure, and profit participation between GPs and LPs.
1. What Is a General Partner (GP)?
The General Partner is the active manager of the deal. In real estate, the GP is typically:
The sponsor or developer
Responsible for sourcing the opportunity
Manages the capital stack, due diligence, financing, and operations
Executes the business plan: construction, leasing, refinancing, or sale
GP Responsibilities:
Underwriting and acquisition
Raising capital from LPs
Securing financing and structuring the capital stack
Overseeing asset management
Handling reporting and investor communications
GP Risk & Return:
Highest operational risk
Often contributes a small portion of total equity (e.g., 5–10%)
Earns promoted interest (the “promote”) once LPs receive a preferred return
Controls the major decisions (depending on the agreement)
2. What Is a Limited Partner (LP)?
The Limited Partner is a passive investor in the deal. LPs contribute capital but are not involved in day-to-day operations or decision-making.
LP Characteristics:
Often institutions, family offices, or accredited individuals
Invest for exposure to real estate without managing it
Receive priority returns before the GP earns promote
LP Risk & Return:
Risk is limited to the capital invested
Typically receive a preferred return (e.g., 6–8%)
Share in upside profits after the GP achieves certain performance hurdles
No liability beyond the amount invested
3. Typical GP-LP Structure
In a real estate syndication, profits are distributed through what’s known as a waterfall structure—a tiered framework that outlines how returns flow to Limited Partners (LPs) and General Partners (GPs).
Here’s a common example:
Preferred Return (up to 8%)
100% of profits go to LPs until they achieve an 8% annual return on their invested capital.Next Tier (8%–12% IRR)
Profits are split 80% to LPs and 20% to the GP (this is the promote or incentive for performance).Excess Returns (12%+ IRR)
Profits are split 70% to LPs and 30% to the GP.
These numbers vary by deal, but the structure is designed to reward the GP for outperforming while ensuring LPs receive priority returns.
4. Control and Decision-Making
Understanding control dynamics is key in any real estate partnership. Below is a breakdown of how responsibilities typically differ between the General Partner (GP) and Limited Partner (LP):
Function: Day-to-day management
GP: Yes
LP: No
Function: Property and asset management
GP: Yes
LP: No
Function: Major decisions (e.g., refinancing, sale, capital events)
GP: Usually controls; may require LP approval depending on the agreement
LP: No formal control unless explicitly stated
Function: Capital contribution
GP: Sometimes contributes 5–10% of total equity
LP: Provides the majority of the equity
Function: Liability
GP: Has unlimited liability (typically as the managing member or entity)
LP: Liability is limited to the capital invested
In short, the GP holds operational control and execution authority, while the LP remains passive, contributing capital and receiving priority in returns without direct involvement in decision-making—unless specifically outlined in the deal’s operating agreement.
5. Choosing Your Role
Be a GP If:
You want to actively manage the deal
You have experience sourcing, financing, and operating real estate
You want promote-driven upside
Be an LP If:
You want passive exposure to real estate
You prefer a hands-off investment
You value downside protection and liquidity via preferred return and seniority
Sterling’s Role in the Capital Stack
At Sterling Asset Group, we often act as:
A strategic advisor to GPs on capital stack structuring and investor communications
A co-investor or LP in select opportunities
An intermediary aligning capital with execution, ensuring both sides understand expectations and roles
Whether you’re looking to raise capital as a sponsor or deploy funds as an investor, clarity on structure and alignment is essential.
Conclusion
Understanding the GP vs LP dynamic is foundational in real estate investing. Each role offers distinct risks, rewards, and responsibilities. The best partnerships succeed when incentives are aligned and expectations are clearly defined from day one.