Programmatic LP equity.

What is programmatic LP equity?

Programmatic LP equity is a commitment from one LP investor to fund the limited partner equity in a sponsor's next several deals. The investor and the sponsor agree at the start on what kind of deals qualify and on the economics. Each deal that fits is then approved against those terms.

It is also called a programmatic joint venture. A single-deal joint venture covers one property. A program covers the pipeline.

Programmatic vs deal-by-deal LP equity

Why sponsors use a program

• Speed. You can commit to a seller without starting an equity raise.
• Certainty. The LP has already approved the strategy, the markets and the terms.
• One relationship. One investor, one set of documents and one reporting format.
• Scale. A committed LP lets you pursue several deals at once.

In return the LP usually expects a first look at the deals that fit, and approval over each one.

What LP investors look for in a program

• A realized track record in the same strategy, as principal.
• A pipeline you can describe: asset type, markets, deal size and pace.
• Your own cash in every deal.
• Clear fees, promote and waterfall.
• An organization that can run several deals at once and report on them.

A sponsor with one or two deals behind it is usually better served by a single-deal joint venture first. See LP equity.

An example

A sponsor plans to buy seven $100 million properties over the next few years. Each needs $35 million of equity: $31.5 million from the LP and $3.5 million from the GP.

A programmatic LP commits to the LP share across the series, about $220 million in total, subject to approving each deal against the agreed criteria. The sponsor no longer starts an LP raise each time it ties up a property.

That leaves the GP checks: $3.5 million a deal, $24.5 million across seven. With programmatic co-GP equity funding about 85% of each, the sponsor's own cash across all seven is $3.5 million.

Illustration, not a projection. Each deal: $100 million acquisition, 65% loan, $35 million of equity split 90% LP and 10% GP, with a co-GP funding about 85% of the GP check. Terms are negotiated per program.

What gets agreed at the start

• Commitment and period. How much the LP will fund and for how long.
• The box. Asset type, markets, deal size, leverage limits and minimum returns.
• Economics. Preferred return, promote hurdles and splits, and fees.
• GP co-invest. The percentage the GP funds on each deal, and whether a co-GP can fund part of it.
• Approval process. What the LP needs to see and how long it has to respond.
• Exclusivity. Whether the LP sees every deal that fits, and what the sponsor may do with a deal it passes on.
• Pooling. Whether each deal stands alone or the promote is calculated across the program.

The last point matters. When deals are pooled, a weak deal reduces the promote earned on a strong one. Sponsors generally prefer each deal to stand alone; LPs often ask for pooling.

What the LP gets from a program

• A steady flow of deals from a sponsor it has already diligenced.
• Terms set once, without competing on each deal.
• Scale in a strategy it wants, with one partner to monitor.

Understanding this helps in negotiation: a program is valuable to the LP as well.

When a program is the wrong structure

• The next deals differ from each other in asset type or strategy. A program needs a repeatable box.
• The sponsor wants to price each deal with the investor who values it most.
• The pipeline is uncertain. An unused commitment strains the relationship.

In those cases, raise LP equity deal by deal and revisit a program once the pattern is clear.

How we arrange it

1. Review. Track record, pipeline and how past deals were capitalized.
2. Structure. The size of the program and the terms to ask for.
3. Placement. Introductions to LP investors with a programmatic mandate in your asset type and markets.
4. Terms. Term sheets, then a choice of partner.
5. First deal. The program documents are signed with the first acquisition. Later deals follow the same form.

Pair it with programmatic co-GP equity

A programmatic LP covers most of the equity in each deal. The sponsor still owes the GP co-invest, typically 10% of the equity, on every one. Programmatic co-GP equity covers most of that check. With both in place the sponsor's own cash goes much further. We arrange both.

Multifamily is the largest category we place. See multifamily co-GP equity or all asset types.

Questions sponsors ask.

What is programmatic LP equity?

A commitment from one LP investor to fund the limited partner equity in a sponsor's next several deals, under terms agreed at the start.

Is programmatic LP equity the same as a programmatic joint venture?

Yes. Both describe one LP investor backing a sponsor across a series of deals.

Does the LP approve each deal?

Usually. The program sets the criteria and the terms, and each deal is approved against them.

How large are the LP checks?

Typical checks on the deals we raise are $5 million to $50 million per deal.

Who is a programmatic LP relationship right for?

Sponsors with a repeatable strategy, realized deals in that strategy and a pipeline of several deals.

Can you raise the GP co-invest as well?

Yes. We place co-GP partners who fund 80 to 90% of the GP co-invest, by deal or as a program.

How much does a programmatic LP commit?

It depends on the pipeline. In our illustration, seven $100 million acquisitions need about $220 million of LP equity in total.

Are the deals in a program pooled?

It is negotiated. Sponsors generally prefer each deal to stand alone; LPs often ask for the promote to be calculated across the program.

Is a programmatic LP exclusive?

Often the LP gets a first look at every deal that fits the agreed criteria. What the sponsor may do with a deal the LP passes on is part of the negotiation.

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