If the LP puts up 95% of the money, why does the GP get 20-30% of the profits? In this episode, CREI Collin breaks down GP versus LP economics, explaining what each party contributes, how compensation is structured, and how to evaluate whether a deal's economics are fair and aligned with your interests as a passive investor.

• What the GP contributes beyond just finding the deal (expertise, execution, liability)

• What the LP contributes and why your role is truly passive

• The six main sources of GP compensation: fees, promote, and co-investment

• How the promote (carried interest) works and why it aligns GP compensation with performance

• How to evaluate whether GP compensation is fair and reasonable

• Red flags in GP vs. LP economics that should prompt deeper questions

[00:00] Introduction Why GP and LP play fundamentally different roles and how economics reflect those differences

[02:30] What Does the GP Contribute? Deal sourcing, capital raising, financing, asset management, disposition, and personal liability

[06:15] What Does the LP Contribute? Equity capital, passive role, limited liability, and tax benefits

[09:40] How GP Compensation Is Structured Acquisition fee, asset management fee, refinance fee, disposition fee, promote, and GP co-investment

[14:20] Understanding the Promote (Carried Interest) Why the promote is the most important component and how it aligns with performance

[18:50] Evaluating Whether GP Compensation Is Fair Key questions about fees, co-investment, preferred return, and track record

[23:10] Red Flags in GP vs. LP Economics Excessive fees, no GP co-investment, LP-unfriendly waterfalls, and vague disclosures

[26:30] Recap and Action Steps How to evaluate total GP compensation in your next syndication deal

✅ The GP contributes deal sourcing, underwriting, financing, asset management, execution, and personal liability—the LP contributes capital and has a passive, limited liability role

✅ GP compensation comes from six sources: acquisition fee, asset management fee, disposition fee, refinance fee, promote (carried interest), and GP co-investment

✅ The promote is the GP's share of profits after the LP receives their preferred return and return of capital—it directly ties GP earnings to deal performance

✅ To evaluate fairness, ask: Are fees in line with market standards? Is the GP co-investing? Does the LP get paid first? Is the promote structure reasonable?

✅ Red flags include excessive fees, no GP co-investment, LP-unfriendly waterfalls, non-cumulative preferred returns, and vague fee disclosures

✅ A great sponsor who delivers strong returns deserves to be compensated well—the key question is whether they only make money if you make money

• CREI Partners: CREIPartners.com

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This podcast is for educational and informational purposes only and does not constitute legal, tax, or investment advice. Always consult with a qualified CPA, attorney, and financial advisor before making any investment decisions.

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