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What Do LP And GP Stand For In Real Estate? Learn More About These Essential Roles

Co-Founder and Managing Partner of Disrupt Equity. Learn more about our multifamily investment opportunities by visiting our website.

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In real estate investing, everyone has a role in the project that is critical to its success—whether that's the person that finds the deal, the investors or even the company that takes care of finding tenants. Two important roles of any real estate deal are the LPs and GPs. What do LP and GP stand for? Let's find out and see how these roles work together to make real estate deals happen!

What do LP and GP stand for?

The definitions of these terms are simple:

LP stands for limited partner. GP stands for general partner. General partners can also be referred to in the real estate industry as sponsors or the sponsorship team.

Both roles are essential for making a real estate syndication deal happen. One provides the equity, and the other does all the legwork, including finding a prospective deal, raising capital and seeing it through to completion.

What is a general partner?

The general partner(s) of any real estate deal is the "brains" of the operation. They are the ones driving the deal from inception to completion.

General partners typically handle:

• Finding the real estate property.
• Raising capital.
• Arranging the financing.
• Hiring and working with vendors.
• Making day-to-day decisions about the investment strategy.
• Selling the building after some time (typically five to 10 years).

The general partners are the ones who make the deal work, and as such, when engaging in any real estate transaction, you must trust and have confidence in the GPs!

What is a limited partner?

A limited partner has one job and one job alone: Provide investment money.

That's right! All limited partners do is provide a slice of the equity financing necessary to make the deal happen.

If something goes wrong with the real estate deal, the GPs will face issues, not the limited partners. They merely provide an investment of capital in exchange for equity in the building.

In exchange for their investment, limited partners receive a good rate of return, and they also get a piece of the sale when the general partners sell the building for a profit in the future.

How does this work in commercial real estate?

To illustrate how GPs and LPs work together in commercial real estate, let's go through an example of a multifamily real estate deal. Suppose a GP sees a $10 million apartment building that seems like a great investment opportunity. The general partner will put together a prospectus and information to raise capital from LPs. This prospectus will include the projected returns, risks and strategy for the investment.

Once the general partner has raised enough money to acquire the commercial asset, they will buy the building, organize the property management, and once the business plan has been executed, eventually sell the property, closing out the original loan and distributing the earnings to the investors.

Along the way, the GP will distribute rental money (passive income) to investors as a form of return. They'll also handle all the tenant contracts and other decisions along the way.

What do the LPs and GPs typically earn?

Limited partners put in money and receive cash flow returns and a final lump sum payment at the end, representing their share of the building sale proceeds.

Let's assume that an LP invested $100,000 into the apartment building above. Further, suppose the investment pays an 8% cash-on-cash return annually, and the GP decides to hold onto the building for five years. In this example, the investor would earn $8,000 per year for five years, totaling $40,000. Assume the building sells for $12 million after all renovations, and to keep things simple, let's assume the loan amount is still $8 million. The total proceeds from the sale would be $4 million, and the investor's portion would be $200,000. The LP would then receive $240,000 total from their original $100,000 investment, representing a profit of $140,000 or a total ROI of about 19% per year.

When it comes to GP returns, GPs get compensation for driving the transaction through various fees throughout purchasing and owning the property. The four most common fees are:

• Acquisition: 1%-2% of the deal size, or somewhere between $100,000 and $200,000 in the example above.
• Management: 3%-6% of the property's gross income annually.
• Asset Management: 1%-2% of the total invested equity.
• Disposition: 1%-2% of the property's selling price.

Lastly, in addition to cash-on-cash returns and appreciation, one of the incredible benefits for LP investors is the pass-through tax benefits. Any depreciation that takes place on the property is passed to LP investors in the form of K-1s. Many of the projects target a 30%-50% tax write-off in year one of the investment.

Both LPs and GPs are necessary for a successful real estate deal. The general partner does most of the legwork and research. In contrast, the limited partners invest the money and have limited liability and input in any decision-making process.

Whether you choose to be a limited partner or a general partner, now is the best time to get started. Commercial real estate is one of the best investments out there.

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Feras Moussa

Cofounder and Managing Partner of Disrupt Equity. Learn more about our multifamily investment opportunities by visiting our website. Read Feras Moussa's full

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Dwayne Johnson clenches his granite jaw as he squints into the distance. A bead of sweat drips down his forehead before he throws back his head in a belly-shaking laugh. It's a sweltering summer day in Atlanta, and The Rock is on set doing what The Rock does best. He licks his lips, delivers his lines with panache and swaggers his hulking 6-foot-5 frame out of the shot.

Johnson is rarely out of focus these days. In the last decade, the 46-year-old former professional wrestler has leveraged his indefatigable charm—the kind that drives him, only half-jokingly, to float himself as a potential presidential candidate—to become Hollywood's most bankable star. His acting earnings last year—the vast majority of his $124 million haul—are the largest ever recorded in the 20 years Forbes has tracked the Celebrity 100 and nearly double the $65 million he earned in 2017.

"The number one goal is to create stuff for the world," says Johnson, sitting in his air-conditioned trailer in a blue polka-dot shirt and jeans. In other words, ubiquity. Besides a stream of movies, there's his hit HBO series, Ballers, and one of the shrewdest strategies on social media. On Instagram, where he has more than 108 million followers, he delivers inspirational videos of himself talking directly to his iPhone, often in his traveling gym. Other posts—leveraging another 13 million Twitter followers and 58 million on Facebook—introduce movie trailers, show Johnson in development meetings and celebrate his "cheat day" pancake stack, all decorated with multiple hashtags and millions of likes.

How Dwayne Johnson Became The World’s Biggest Star

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Now he's pioneering a new way to cash in on that digital fame. In addition to hefty $20 million up-front paychecks and cuts of back-end studio profits—starting with July's Skyscraper, in which he plays a former FBI hostage-rescue leader—he'll insist on a separate seven-figure social media fee with every movie in which he appears, according to people familiar with his deals. In other words, rather than have studios dump money into TV ads or billboards, their new paid-marketing channel doubles as their marquee star.

"Skyscraper," which opens July 13, is Dwayne Johnson's fifth movie in the past 15 months, following the "Baywatch" and "Jumanji" reboots, the latest in the "The Fast and the Furious" series and "Rampage."

Evan Agostini/Invision/AP

"Social media has become the most critical element of marketing a movie for me," Johnson says. "I have established a social media equity with an audience around the world that there's a value in what I'm delivering to them."

Johnson still does the talk show circuit, the press tours and the other promotional duties expected of stars (especially when the real money comes from box-office back end). But in stipulating that social media channels are separate platforms that require separate fees, Johnson is attempting to set a Hollywood precedent.

For The Rock, at least, the studios seem to have accepted this arrangement: Promotional spending on a tentpole movie can climb above $150 million and still not guarantee a blockbuster. A-list actors tapping their fan base augurs a cheaper, more targeted way for studios to promote a new movie.

"The star power that matters right now is the power of social media," says Paul Dergarabedian, a senior media analyst at ComScore. For now, The Rock is alone in demanding cash for social media on top of his contract. His Central Intelligence costar, Kevin Hart, pocketed $2 million from Sony for tweeting about his own films and others years ago, but the scale of the comedian's overall paycheck is still dwarfed by Johnson's. In fact, studios now track social media following and engagement to make casting decisions.

Johnson has always had engagement by the ton. He followed his father and grandfather into professional wrestling, borrowing a piece of his father's ring name, Rocky Johnson, to become The Rock—a sobriquet that encapsulates both his physique and his attitude.

A 2000 appearance on Saturday Night Live caught the eye of Universal executives, who gave him a cameo in The Mummy Returns in 2001. Impressed, the studio gave his tiny character its own spinoff, The Scorpion King, which went on to earn more than $165 million worldwide on a $60 million budget.

After a string of middling action movies and then three saccharine family movies (Tooth Fairy, anyone?), The Rock rebooted his career by doubling down on the brawn that first earned him a fan base. "My wrestling past has informed me in terms of having a real connection with an audience," he explains. "It has to be audience first. What does the audience want, and what is the best scenario that we can create that will send them home happy?"

Such a give-the-people-what-they-want philosophy may not win him Oscars, but it will make billions at the box office. According to analysts, Johnson has high appeal in all four quadrants tracked at the multiplex: male, female, over-25 and under-25.

Despite critical disdain, Dwayne Johnson's "The Tooth Fairy" in 2010 still managed to do $60 million at the box office.

2010 Getty Images

For studios, he's a dependable hedge against a North American box office that dipped 2% in 2017 to $11.1 billion. The international language of blowing stuff up doesn't require translation, and his forte is exactly what sells abroad. (More than 64% of his box-office grosses come from international audiences.) Thanks to Johnson's mixed Samoan and African-American heritage, his melting-pot looks make him a local hero around the globe.

As Johnson succeeded, he upped his business game. Five years ago, with his ex-wife and manager, Dany Garcia, he launched Seven Bucks Productions, geared at transforming The Rock from an actor into an enterprise. When Johnson appears in a movie, the Seven Bucks creative, production and digital team of eight work on every element, from developing the script to aiding production and helping guide its promotional rollout. The company also runs a YouTube channel and creates mobile content for Johnson's social media platforms.

"Having a very large footprint helps us execute," says Garcia, a former wealth manager who also runs a talent-management firm while overseeing Seven Bucks Productions alongside Johnson. "We would never do anything half-assed."

The impact created extends to Johnson's endorsements, which include Apple and a recently concluded Ford partnership. With the addition of a former Droga5 executive, Seven Bucks Creative, a team of two, crafted Johnson's Project Rock campaign with Under Armour, in which Johnson has a bestselling apparel line and a new branded set of headphones.

Dwayne Johnson at his Forbes photo shoot.

Michael Prince for Forbes

The natural progression: projects where Johnson isn't necessarily front and center. "This is our next step," Garcia says. "Let's take ownership, develop properties and look into properties that we can retell." Over the next few years, Seven Bucks will roll out The Janson Directive, starring WWE colleague John Cena, and Shazam!, a superhero action adventure.

The name Seven Bucks is an inside joke, a reminder of a bleak period early in his career, when he was cut from the Canadian Football League and arrived broke in Tampa in October 1995.

Disney's "Moana" brought in almost $240 million at the box office; Dwayne Johnson starred in the animated feature film as the demigod Maui.

2016 Getty Images

"I had a five, a one and change," he recalls of his net worth, adding that as an optimist, "I rounded up to seven."

Now his net worth is closer to $165 million. It's a journey that, he claims, puts him right on time. "What I've learned from [Disney CEO] Bob Iger is when you're going to do something right with global appeal," Johnson says, "it's going to take time—a decade, two decades, possibly more." What will the next two decades look like? Fittingly, he speaks like a hashtag: "It's limitless."

Reach Natalie Robehmed at [email protected]. Cover image by Michael Prince for Forbes.

Natalie Robehmed

I'm an associate editor at Forbes covering media and entertainment, with a focus on the movie business. For the magazine, I've written cover stories on ...

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