GP vs. LP in Real Estate: 95/5, 90/10, Promotes & Waterfalls

In a GP/LP structure, the general partner leads the deal and the limited partner provides most of the required equity capital. This is one of the most common ownership structures used in large commercial real estate investments, including hotels, multifamily assets, and development projects. For sponsors, the structure can create a powerful way to pursue larger deals, preserve liquidity, and potentially magnify returns through promotes and waterfalls.

At Skylatus Property Capital, we help owners, sponsors, and investors think through how debt, equity, and ownership structure fit together. This guide explains the difference between GP and LP in real estate, how 95/5 and 90/10 structures work, and why sponsors often use them in hospitality and other commercial real estate deals.

What GP and LP Mean in Real Estate

The general partner, or GP, is usually the sponsor of the investment. This is the party that finds the deal, structures the acquisition, executes the business plan, manages the major decisions during the hold period, and leads the eventual sale or refinance. In a development deal, the GP is often the same party as the developer.

The limited partner, or LP, is typically the investor providing most of the required cash for the deal. In many institutional transactions, the LP is a private equity firm or fund with the financial capacity to write very large equity checks. For the most part, the LP functions as a passive investor, even though it may have consent rights around major decisions.

In simple terms:

• GP: Finds the deal and drives the execution
• LP: Provides most of the capital

How 95/5 and 90/10 Structures Work

GP/LP structures are often described using the percentage of equity capital contributed by each party. Two common formats are 95/5 and 90/10.

• 95/5 structure: The limited partner contributes 95% of the required equity, while the general partner contributes 5%.
• 90/10 structure: The limited partner contributes 90% of the required equity, while the general partner contributes 10%.

The reason these structures are common is straightforward: the LP usually has much greater financial capacity than the GP. The sponsor may have the expertise, relationships, and execution capability to lead the investment, but not the balance sheet required to fund most of the equity personally.

Why Sponsors Use GP/LP Structures

A GP/LP ownership structure can be attractive from a sponsor’s perspective because it creates a way to pursue institutional-quality transactions without having to fund the entire equity requirement alone. It also preserves sponsor liquidity and can create more favorable economics than a fully self-funded strategy.

Three of the most important sponsor-side advantages are:

• Access to larger deals with less capital
• Deal-by-deal risk isolation rather than fund-level aggregation
• The ability to magnify returns through promotes and waterfalls

Advantage 1: Access Larger Deals With Less Capital

The biggest immediate advantage of a GP/LP structure is that it allows the sponsor to invest in much larger deals than they could fund independently. Instead of writing the full equity check, the sponsor contributes only a fraction of the required cash while still maintaining the sponsor role and leading the execution.

This can be especially valuable because it allows the sponsor to stretch capital across multiple investments rather than tying up liquidity in a single deal. For an active sponsor or developer, that flexibility can be critical to long-term growth.

Advantage 2: Deal Isolation Instead of Fund-Level Aggregation

Another important advantage is that most GP/LP investments are structured on a stand-alone basis. That means one poor investment usually does not directly drag down the economics of unrelated deals the same way it might inside a fund structure where multiple investments are aggregated together.

If a sponsor were operating through their own private equity fund, one underperforming deal could affect the broader fund’s performance and, in some structures, reduce the sponsor’s promote across the entire vehicle. In a deal-by-deal GP/LP format, the economics are generally isolated to that individual investment.

Advantage 3: Magnifying GP Returns Through Promotes and Waterfalls

The third major advantage is that a GP/LP structure can allow the sponsor to earn a disproportionately large share of the upside relative to the amount of capital they invest. This is where the concepts of the real estate promote and the real estate waterfall become important.

For example, in a 95/5 deal the GP may contribute only 5% of the required equity, but because of how the waterfall is structured, the GP may earn 20% to 60% of certain distributions once the investment hits specified return thresholds.

That is one of the main reasons experienced sponsors use GP/LP structures: they can combine limited upfront capital with potentially enhanced upside if they execute the business plan successfully.

What a Real Estate Promote Is

A real estate promote is the additional share of profits that the GP earns after the LP has received its negotiated return hurdles or preferred returns. It is designed to reward the sponsor for sourcing the deal, managing execution, and creating value.

In plain English, the promote is what allows the GP to earn more than its simple pro-rata ownership percentage would otherwise suggest. That is why a GP contributing only 5% or 10% of the capital can still participate in a much larger percentage of the upside if the deal performs well.

What a Real Estate Waterfall Is

A real estate waterfall is the framework that determines how cash flow and sale proceeds are distributed between the GP and LP as the investment performs. The waterfall usually sets out a sequence of distribution tiers, often tied to return thresholds, preferred returns, or internal rate of return hurdles.

The waterfall is important because it defines the economic relationship between the GP and the LP. It tells both parties:

• Who gets paid first
• What level of return the LP receives before the GP earns additional upside
• When and how the GP’s promote begins to apply

The exact waterfall terms vary from deal to deal, but conceptually it is the mechanism that lets a GP magnify returns beyond its raw capital contribution.

How This Applies to Hotel and Commercial Real Estate Ownership

This structure is highly relevant in hospitality because hotels are often operationally intensive and capital-heavy investments. A sponsor may have the experience to source and execute a hotel business plan, but not the balance sheet to fund most of the required equity personally. That makes the GP/LP format a natural fit for many hotel acquisitions, developments, and repositionings.

In broader commercial real estate, the same logic applies. GP/LP structures are often used whenever there is a strong sponsor with execution capability paired with an institutional capital source that wants exposure to the deal but prefers a more passive role.

For more context on how ownership structure intersects with debt and equity planning, see our pages on hotel financing and types of capital.

How Skylatus Helps Think Through These Structures

Ownership structure is not just a legal concept. It affects control, capital commitments, upside sharing, decision-making, and the long-term economics of the deal. That is why it has to be evaluated alongside debt sizing, equity strategy, and the actual business plan for the property.

At Skylatus, we help sponsors and owners think through the broader picture: how debt and equity fit together, how a sponsor should be capitalized, and how ownership structure should align with the goals of the investment. Whether the situation involves a hotel acquisition, a development opportunity, or a recapitalization, the goal is to structure the deal in a way that matches the business plan and the capital base behind it.

For more perspective on how Skylatus approaches complex transactions, review our closed deals and selected case studies.