Most developers/sponsors are looking for an LP. However, they expect to give the LP decision making/approval rights over various "major decisions." You should negotiate for such rights and GP's should be willing to provide.
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Are most U.S. real estate developers looking for an LP or a GP when sourcing capital from an institutional investor?
We are a Chinese equity fund with real estate investments in Australia and Europe. We’d like to expand our portfolio to include real estate in the United States. We want to protect ourselves and are seeking projects with minimum risk. In general, should we seek to invest as an LP or GP?
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It should depend on the terms of the deal but developers generally might seek a GP interest. For non-institutional LP investors outside of the U.S. in particular (including non-U.S. family offices), there should be careful consideration of the potential implications under the U.S. estate tax. Real estate in the U.S. is a U.S. situs asset subject to the U.S. estate tax even in the hands of a non-U.S. person. The estate tax is currently imposed at 40% on any value above $60,000.
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Thank you for your question. In general, investing as an LP should carry less risk than investing as a GP, which can be held responsible for a range of project-related liabilities. Most US developers are seeking LP investments, but certain developers might be open to a GP relationship; could be a joint venture, especially if both parties are interested to pursue multiple projects together. Hope this is helpful. Please feel free to reach out to me directly. I am interested to learn more about your fund and your goals for investing in the US.
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