4 reasons why GPs need to invest as LPs in other GPs’ deals

Sometimes the most brilliant practices to grow as a GP are right under your nose. I recently spoke to a seasoned GP, who told me he regularly invests as an LP in other GPs’ deals. I have to admit that it caught me by surprise, but the more I discussed it with him, the more sense he made.

Throughout my career in commercial real estate, I mainly saw this transition in one direction – investors starting out as LPs, taking some time to learn the ropes, and eventually gaining enough confidence and expertise to start their GP journey. ‍

Then, when they’re ready, they dip their toes as a GP, and after a transition period, they rarely look back. Sure, they may invest as an LP for a specific deal or with a specific GP, but searching for deal opportunities as an LP as part of your regular strategy – that’s something entirely different and rare. And it’s a shame because there’s plenty to gain from it.

From the many reasons I could think of, I picked out the four most pertinent ones. Here they are:

Learning from other GPs

Learning is a process that never ends, especially in commercial real estate, and there’s no replacement for learning from the experience of another GP, as part of the deal. ‍

As an LP, you get a front-row seat to seeing another GP in action without taking on the full burden or running the deal. You can gain insights into other GPs’ strategies and workflows in the process, for example:

• How they market the deal, run the offering process, and build the subscription flow.
• How they financially structure the deal.
• New investment opportunities, geographical and sectorial market trends.
• How they handle investor relations.
• Deal sourcing and underwriting practices.
• New CRE tech.
• Property management.
• Learning what not to do.

Diversifying your portfolio

As a GP, you usually stick to what you know and do best, whether it’s a specific asset type (say, multifamily) or a geographic market.

Naturally, it has its advantages. Concentrating on a niche enables you to build your expertise, focus your branding, and help your marketing efforts. However, it has one drawback – it impedes your ability to diversify your investment portfolio.

Investing as an LP helps you tap into new markets and sectors to diversify your portfolio and mitigate the risks associated with whatever market you’re focused on as a GP.

Safe(r) entry into new markets and asset classes

Are you considering getting into a new market or asset class but still unsure about its potential and risks?

Investing as an LP with a GP who already operates in that market can be an effective strategy to probe into that new market in relative safety and learn if it’s worth bringing your GP game into it.

Building relationships

It goes without saying that the most important thing in real estate investing is building relationship networks. It’s also probably the second and third.

Investing in other GPs’ deals can extend your network and create new collaboration opportunities. If we want to talk specifics, it’s a great way to find prospective partners for Co-GP partnerships.

Final thoughts

The commercial real estate industry requires constant out-the-box thinking. The GPs that show steady success are the ones who continually think creatively and are proactive in seeking opportunities to learn and explore and adapt. Investing as an LP for other GPs is one excellent method of doing just that.

About the author

Jamie Stadtmauer is the Vice President of Business Development at Agora and has over 20 years of experience in commercial real estate investing.

Modified Date & Time : 02 Oct 2023, 01:15 pm

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Author

Jamie Stadtmauer

Jamie Stadtmauer is the Vice President of Business Development at Agora and has over 20 years of experience in commercial real estate investing.

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