Syndications & Commercial Real Estate: GP/LP Structure
A syndication offers passive ownership of a building far larger than you could buy alone. It also asks you to hand money to a stranger for five years with no way to get it back early — and the marketing tends to lead with the first half.
Who does what, and who is exposed
A syndication pools money from many investors to buy a property none of them could buy alone. The general partner — the sponsor — finds the deal, arranges the debt, executes the business plan and manages the asset. Limited partners supply capital and do nothing else.
LPs have limited liability: the most they can lose is what they invested, even if the property fails and the lender forecloses. That's the protection the structure exists to provide.
What LPs also have is no control. You cannot force a sale, replace the sponsor, or get your money back because your circumstances changed. Most deals run five to ten years with no redemption mechanism, so the money is committed for the duration in a way that shares in a listed REIT never are.
Not risk of loss — illiquidity. There is usually no way out until the sponsor sells.
How the money is split, in order
Distributions follow a waterfall. LPs receive a preferred return first — commonly quoted around 7–8% — and only after that hurdle is met does the sponsor share in profits above it, taking a promote or carried interest, often around 20%.
The word doing the work is 'preferred', and it means priority rather than guarantee. A cumulative pref that goes unpaid in a bad year accrues and rolls forward to be settled later or at sale. Investors across 2023–2025 discovered this the hard way when distributions were suspended on deals that had been marketed on their 8% pref.
The structure is genuinely well designed for aligning interests — the sponsor earns most of their upside only after investors are made whole. It aligns interests; it does not create returns. If the property underperforms, the waterfall simply decides who gets less.
Why you may not be allowed in
Most syndications are sold under Regulation D, an exemption that lets an issuer raise capital without registering the offering with the SEC. The trade-off is that participation is generally restricted to accredited investors, defined by income or net worth thresholds.
Because the offering isn't registered, the disclosure you receive is whatever the sponsor chooses to provide. There's no prospectus reviewed by a regulator, no standard reporting format, and no audited comparability across deals.
That puts the diligence on you: the sponsor's track record through a downturn rather than just a boom, how much of their own money is in the deal, the debt terms and when the loan matures, and the fee schedule — acquisition, asset management and disposition fees are paid whether or not investors do well.
The GP runs the deal and the LPs supply capital for a preferred return plus a share of profits. A preferred return is an ordering rule, not an income stream, and the position is illiquid for the life of the deal.
Sources
- Regulation D offerings and the accredited investor definition — U.S. Securities and Exchange Commission (2026)