Whether you’re allocating capital passively or building an operator platform, the way you structure a real estate partnership determines control, fees, taxes, risk, and ultimately returns. Here are seven common structures, how they work, and when they shine.
1) Limited Partner / General Partner (LP/GP) Fund
In a classic private equity real estate fund, the GP (sponsor) manages sourcing, financing, asset management, and exits; LPs supply most of the equity. Economics often include a preferred return to LPs (e.g., 6–8%), then a “promote” or carried interest to the GP after a hurdle.
Pros: Diversification across multiple assets, professional management, streamlined reporting.
Cons: Less transparency at the deal level, multi-year lockups, layered fees (management + promote).
Best for: Investors seeking diversified exposure with minimal hands-on oversight.
2) Single-Asset Syndication
A sponsor raises equity for one specific property—think a 200-unit value-add multifamily in a growing Sun Belt submarket. Investors know the exact business plan and underwriting at entry. Offerings are often made via Reg D 506(b) or 506(c).
Pros: Deal-level transparency, targeted underwriting, potentially shorter timelines than a blind-pool fund.
Cons: Concentration risk, dependence on a single operator and business plan, similar fee stack to funds.
Best for: Investors who want to choose their exact asset and thesis.
3) Joint Venture (JV)
Two or more parties contribute capital, capabilities, or both. A common setup pairs an operator (who manages the project) with a capital partner (who brings a large equity check). JV waterfalls can be highly negotiated, with governance rights (budgets, major decisions) shared.
Pros: Custom terms, strong alignment when parties contribute complementary strengths.
Cons: Complexity—lawyer time adds up; potential for decision gridlock without clear governance.
Best for: Institutional or larger check-writers who want control rights and bespoke economics.
4) Programmatic JV
A programmatic JV is a repeat-deal partnership between the same operator and capital partner under a master agreement. Instead of renegotiating each deal, parties pre-define target markets, return hurdles, fees, co-investment minimums, and approval mechanics.
Pros: Speed to capital, consistent processes, scale advantages in sourcing and operations.
Cons: Concentration risk in a single counterparty; performance covenants can tighten flexibility.
Best for: Operators with a pipeline and capital partners seeking scalable deployment.
5) Co-GP Partnership
Here, multiple sponsors team up at the “GP layer.” One firm might specialize in acquisitions, another in construction, and a third in capital markets. The co-GP group splits the promote and fees and may collectively invest meaningful “GP equity.”
Pros: Broader skill set at the helm; improved lender and investor confidence.
Cons: More cooks in the kitchen; promote splits dilute each sponsor’s upside; requires robust operating agreements.
Best for: Sponsors wanting to expand capacity or enter new asset classes without building everything in-house.
6) Preferred Equity Partnership
Preferred equity sits between senior debt and common equity. Pref investors receive a fixed or floating coupon (often with current pay and accrual) and priority in the capital stack—getting paid before common equity but after senior lenders.
Pros: Downside protection relative to common equity; defined return profile; shorter duration in some cases.
Cons: Capped upside; intercreditor complexity with lenders; sponsor cash flow pressure if the deal underperforms.
Best for: Investors seeking income and improved downside resilience; sponsors needing gap funding to hit LTC/LTV targets.
7) DSTs, TICs, and UPREIT/DownREIT Options (Tax-Efficient Paths)
- DST (Delaware Statutory Trust): Popular for 1031 exchange investors; offers passive ownership in institutional assets with sponsor-managed operations.
- TIC (Tenancy-in-Common): Co-owners hold fractional deeds; more control than DSTs but heavier lender/legal complexity.
- UPREIT/DownREIT: Property owners contribute assets for Operating Partnership (OP) units in a REIT structure, potentially deferring taxes and gaining diversified exposure.
Pros: Tax deferral (1031 or Section 721), passive income, institutional management (DST/REIT).
Cons: Limited control (DST/REIT), transfer restrictions, fee layers, and interest-rate sensitivity on valuations.
Best for: Sellers prioritizing tax efficiency and passive investors seeking turnkey ownership.
How to Choose the Right Structure
- Capital Goals: Seeking income, appreciation, or both? Preferred equity favors income; LP/GP or JV can capture more upside.
- Control & Governance: Do you need decision rights, or is passive exposure acceptable? JVs offer veto rights; funds/DSTs are more hands-off.
- Tax Profile: Are you executing a 1031? Consider DSTs/TICs. Contributing assets to a REIT via UPREIT can enable deferral and diversification.
- Timeline & Liquidity: Understand hold periods, refinance plans, and exit options. Secondary markets for private interests are limited.
- Operator Quality: Track record, reporting, skin in the game, and alignment matter more than the pro forma IRR.
Finally, remember that structures are tools—your objectives and risk tolerance should drive the selection. If you’re building an allocation plan, map each vehicle to a role (core income, value-add growth, tax-advantaged deferral) and size positions accordingly. For a deeper dive into frameworks that blend cash flow, appreciation, and risk controls, explore strategies for investing in real estate within diversified, multi-vehicle portfolios.