Behind every ground-up development is a capital stack — a layered arrangement of debt and equity that determines who’s funding what, who’s making which decisions, and who gets paid in what order. Two roles within the equity portion show up in almost every deal: the limited partner (LP) and the general partner (GP), with the latter often joined by co-general partners (Co-GPs).
This piece walks through what each role does and how the relationships are typically structured — at the industry level, not in connection with any specific transaction.
The capital stack, briefly
A development project is funded by a layered set of sources, generally referred to as the “capital stack.” Each layer differs in cost, risk, security, and order of repayment.
At the top sits senior debt — typically a construction loan, secured by the property, and the first to be repaid. Below that, on larger or more leveraged deals, can sit mezzanine debt or preferred equity, which fill the gap between what senior lenders will fund and what the sponsor can raise in common equity. The remaining funding need is filled by common equity, which is where LPs and GPs sit.
Equity is the riskiest dollar in the stack and the last to be repaid. It is also the dollar that earns the upside if the project performs.
What a Limited Partner does
A Limited Partner — LP — provides the majority of the equity in most development deals. The LP role is, as the name suggests, limited: the LP does not make day-to-day decisions, does not sign loan documents on a recourse basis, and is not responsible for executing the deal. In exchange, the LP’s liability is capped at the dollars committed.
LPs come in many forms. Family offices and high-net-worth individual investors are a meaningful portion of the LP base in middle-market development. Institutional capital — pension funds, endowments, insurance accounts, and the discretionary funds that pool capital on their behalf — is a larger portion in the upper-middle market and above.
What LPs share is the same basic relationship: they entrust capital to a sponsor, expect that capital to be deployed according to the terms of the partnership agreement, and participate in distributions on the schedule the agreement sets.
What a General Partner does
The General Partner — GP — is the sponsor. The GP sources the deal, underwrites it, takes it through entitlements, manages construction, and oversees the asset through stabilization. The GP signs the loan, hires the team, manages the budget, and is on the hook for the day-to-day decisions that make or break a project.
Economically, the GP typically contributes a smaller share of the equity than the LP. What the GP earns in exchange is a combination of fees (acquisition, development, asset-management) and — importantly — a promote, also called carried interest. The promote is a disproportionate share of distributions above a defined return hurdle, paid to the GP only after the LP has received their preferred return and a return of capital.
The promote is the alignment mechanism. It pays the sponsor for outperformance, and not for showing up. A deal that does not clear the LP’s hurdle does not pay a promote — which means the GP has every incentive to execute well, not just to close.
Where Co-GP capital fits
Co-General Partner — Co-GP — capital sits alongside the GP in the sponsor’s economics. A Co-GP partner contributes capital into the GP’s slot in the deal and participates in the GP’s promote and fees, on terms negotiated with the lead sponsor.
The Co-GP role is structurally different from the LP role. It is a deeper seat at the table: more upside if the deal performs, more risk concentration if it doesn’t, and typically more visibility into the sponsor’s decision-making. It is the right structure for experienced real estate investors who want to participate alongside a sponsor they know well, on terms that look more like co-investing than passive investing.
Why both structures exist
Investors have different objectives, different time horizons, and different appetites for involvement. The LP/Co-GP distinction lets a sponsor accommodate both:
- An investor who wants passive exposure to institutional-quality rental housing, with capped liability and a defined return structure, fits the LP role.
- An investor who wants to participate in sponsor-level economics, accepts the concentration that comes with that, and wants to be closer to the deal, fits the Co-GP role.
Most sponsors raise into both structures, sometimes within the same fund or deal. The capital stack is built to match the investor base, not the other way around.
What this means in practice
The labels — LP, GP, Co-GP — describe relationships, not investment products. The actual economics, hurdles, fees, promote splits, and governance terms vary deal by deal and sponsor by sponsor. The right question for any investor is not “what’s an LP?” but “what does this specific partnership agreement say about what I receive, when, and under what conditions?”
That is a conversation that happens inside the documents, with counsel — not on a website.
Alder partners with investors in both LP and Co-GP structures, with documentation made available only to qualified investors in the course of an established relationship.