Once an accredited investor would like to become a Limited Partner and is satisfied with the development prospect, the process is fairly straightforward. In the operating agreement, there will be an Article defining the distributions of the project at completion.

Some key takeaways are that you, the LP, will receive a preferential rate of return that will be defined at the project’s outset, which is commonly referred to just as “Pref”. As an example, if Pref on your development is 9%, the minimum return that you are entitled to receive on a successful development is 9% per year, for as many years as your funds are invested. At Green Beacon, because our reputation comes before everything else, we will cut into our fees to make sure that the LP’s receive Pref no matter what.

Many projects will have returns in excess of Pref, on those deals there is a split between the LP and the project principle, most commonly the GP. In this case, your overall return will increase. As the success of the project increases, the LP makes more and the project sponsor will get a Promote as an incentive to make sure that the development stays on time, on budget, and within scope. This is all known collectively as the project’s Waterfall.

The interactive Waterfall calculator below demonstrates how the returns are split between the LP and the project sponsor.