Winding up a limited partnership

[TangoWhiskey]

If one forms an LP, essentially the general partner is pooling money raised from investors to buy RE to hold for probably 5-7 years before selling for a profit. What happens when it is time to wind up the LP? What triggers the wind-up, how much can it be delayed, how is the sale of 20-50 assets managed to give the general partner their best shot at maximising profit? For example, to reduce the exit sales commissions, could you market and sell individual buildings to LP unit holders as direct ownership? Ie, get them used to the idea of owning through the LP units, and then market the buildings when the LP is being wound up to the unit holders themselves as a low cost low risk entry into direct ownership where those people don't want their money back.



Without a lot of flexibility in choosing when and even how you market and sell the assets you add a real level of risk to the investment's overall performance. As well, a nice strategy to maximise sales price is giving a VTB. The only way I can think of to give the VTB (a small one, say for 5-10 % to help a buyer get into a deal in return for a higher price and financing rate) but then turn it into cash for distribution back to the unit holders is to sell the VTB through a mortgage broker.



I'd like to know how much the exit from an LP constrains the general partner in how they're doing it.



Thanks to everyone who answers, especially of course Thomas.

 

[TangoWhiskey]

To add to the commments above, if you've been operating an asset profitably with good maintenance, tenant selection and attention to overall curb appeal and building aesthetics, those should be pretty attractive assets commanding a strong price that are - crucial point - properly managed and generally a hands-off investment proposition. Selling the assets - say apt bldgs 1-3 mill in size - to the LP unitholders could be a real win win outcome that avoids commissions while maximising exit value and also being a good deal for an investor like a Dr or lawyer who wants the higher returns of direct ownership but without the management and time issues necessary to find and run deals. Plus they trust you as a result of the prior relationship in selling them the LP units.



That should be a winner - what would prevent it? This kind of thing must happen unless its forbidden for some reason.

 

[Thomas Beyer]

The LP is governed by an LP agreement between the limited partners and the general partner (GP), and usually gives the GP broad discretion . Selling with or without commission, with or without a VTB, to third parties or related parties, or re-financing and holding longer, is an option usually.

 

[TangoWhiskey]

Thanks

If setting up an LP costs say 50K, not counting ongoing marketing or commissions costs etc, how much does it cost to wind one up?

 

[Thomas Beyer]

[quote user=TangoWhiskey]how much does it cost to wind one up?
Minor .. some accounting fees !



But: the underlying real estate needs some work .. loads upfront .. little while you hold .. and lots at the end to sell at a decent profit or re-finance .. an LP is a JV on steroids, i.e. a JV with 12+ partners. That takes some expertise in marketing, communications and expectation management in addition to real estate knowledge.