LPs contribute 80% to 95% of the equity and earn a preferred return (typically 7% to 9%) plus pari-passu upside above hurdles. GPs contribute 5% to 20% co-invest, manage the deal, and earn a promote (typically 20% to 30% of cash flow above hurdles). Senior debt is paid ahead of both LP and GP equity.
How the LP/GP split shapes lender underwriting
LP role: passive capital. The LP commits a defined dollar amount, has limited voting rights on major decisions (sale, refinance, new debt above thresholds), receives a preferred return, and shares in upside above hurdles. LP base typically includes high-net-worth individuals, family offices, fund-of-funds, pensions, and endowments.
GP role: active management. The GP (sometimes called the sponsor or operator) sources the deal, executes the business plan, and earns the promote. The GP also typically signs the loan recourse and the bad-boy carve-out, the lender wants the same person who controls the property to bear the structural recourse.
Lender perspective: institutional lenders underwrite the GP's track record, net worth, and liquidity (the lender's key principal tests). LP capital sources are reviewed for source-of-funds and AML compliance but are not typically underwritten the same way. Unusual LP structures (single LP exceeding 50%, foreign-controlled LP, undisclosed feeder funds) trigger additional lender diligence.
Co-invest sizing: typical GP co-invest ranges 5% to 20% of total equity. Lower co-invest may signal a less-aligned sponsor; higher co-invest signals stronger conviction. LPs often require a defined GP co-invest as a marker of skin-in-the-game; lenders factor co-invest into recourse negotiation.
Sources
- Partnership Taxation: IRC Subchapter K (Form 1065 Instructions) · U.S. Internal Revenue Service · current
- Private Funds Statistics (Form PF Aggregate Data) · U.S. Securities and Exchange Commission · 2025-Q3