Investment Structures for Multifamily Offices: Co-GPs, LLCs, and Revenue Sharing
Multifamily offices need structures that match control, economics, risk, and reporting. Co-GP arrangements, LLC share classes, and revenue-sharing agreements can each solve a different problem when the documents are clear and conflicts are disclosed.
Investment Structure Strategies 101 - LLC Share Classes, Co-GP Deals, Gross Revenue Royalties
Start with the investment decision
A multifamily office usually begins with an investment mandate, then chooses a legal and economic structure around that mandate. The order matters. A structure should answer four practical questions: Who contributes capital? Who controls decisions? How are profits and fees allocated? What happens if the relationship ends?
An LLC may be used to hold a specific asset or portfolio and issue different classes of interests. The operating agreement, capital accounts, distribution waterfall, and accounting records should work together. Families should have qualified counsel and tax professionals review the documents before committing capital.
Co-GP structures: divide the work and the economics
In a co-GP arrangement, two or more general partners share responsibility for an acquisition, development, operating company, or fund. One party may source the opportunity and manage the asset. Another may provide capital, financing relationships, operating expertise, or investor access.
The central document is the agreement among the GPs. It should define approval rights, budgets, signing authority, reporting duties, removal rights, deadlock procedures, and liability allocation. It should also state how the promote or carried interest is split after investors receive the agreed return of capital and preferred return, if those features apply.
A useful approach is to separate responsibilities into measurable workstreams. For example, one GP could own acquisitions and lender relations, while another owns asset management and investor reporting. Compensation can then include a management fee, reimbursement of approved expenses, and a performance allocation tied to the waterfall. Each payment should be described in plain language, with the recipient and calculation method identified.
Co-GP deals also require conflict controls. A GP may invest personally, allocate opportunities among several vehicles, or receive fees from vendors. The agreement should require disclosure, specify approval thresholds, and provide a process for related-party transactions.
A co-GP model works best when the parties bring complementary capabilities. It becomes fragile when the parties have overlapping authority, unclear economics, or no plan for a missed capital call.
So there's different types of investors. These investors have voting rights. These don't. These get their money back first. These get paid back next. These investors might be capped at a 2x return. These are not.
LLC share classes: make different rights visible
An LLC can create multiple classes of interests so that economics match investor preferences. Class A might receive a preferred return and limited voting rights. Class B might receive more upside in exchange for taking development or operating risk. A sponsor class might receive a promote after the investor hurdle is met.
The labels do not determine the rights. The operating agreement does. It should cover voting, distributions, capital calls, dilution, transfers, information rights, tax distributions, redemption limits, and conversion mechanics. If one class can convert into another, the formula and timing need to be precise.
Multifamily offices should ask for a distribution illustration using several outcomes, such as a loss, a base case, and a strong exit. The illustration should show cash flows by class, fees paid before distributions, and the effect of debt. This helps the investment committee see whether the stated economics match the actual waterfall.
Liquidity deserves special attention. Private LLC interests may have transfer restrictions, no public market, and limited redemption rights. The office should obtain sufficient information to evaluate the investment before committing capital.
The office should also decide how valuations are produced and reviewed. A quarterly estimate may be appropriate for reporting, but an estimate is not the same as a sale price. The policy should identify valuation methods, third-party inputs, and who approves changes.
Revenue sharing and gross revenue royalties
Revenue sharing pays a participant from an operating business’s receipts. A gross revenue royalty is calculated before expenses, usually as a stated percentage of defined revenue. This can be attractive when the investor wants current cash flow and the operator wants to preserve equity ownership.
The definition of revenue is the first negotiation. Does it include refunds, taxes collected from customers, pass-through costs, subscription renewals, foreign sales, or related-party transactions? The agreement should specify the accounting system, reporting date, audit rights, payment timing, late-payment remedies, and treatment of acquisitions or asset sales.
Gross revenue sharing shifts risk toward the operating company because payments may be due even when margins are thin. A net-profit share gives the operator more room during low-margin periods but creates more room for disagreement over expenses. Some parties use a hybrid: a smaller gross royalty until an investor receives a return threshold, followed by a reduced rate or an equity conversion.
For a multifamily office, the practical test is whether the revenue stream can be verified. Require consistent reports, a defined revenue recognition policy, and a right to inspect records. Build in a dispute process before a missed payment becomes a relationship crisis.
You just need people around you helping you allocate capital, make things more tax efficient, make sure the investment you want to make today is going outta the right structure at the right time, that reporting is done.
Governance, reporting, and alignment
Every structure should have a short investment memo that matches the governing documents. It should state the thesis, downside cases, expected holding period, liquidity limits, fees, conflicts, and exit plan.
Use a recurring reporting package. At minimum, it should show invested capital, distributions, accrued fees, debt, valuation methodology, and material changes to the business. The investment committee should record approvals and recusals when a member has a personal interest.
Richard C. Wilson has observed: “Most entrepreneurial, single-family offices or ultra-wealthy decamillionaires would prefer to go into a single deal rather than a blind pool of fund.” (quote_id: Q0040) That preference can make a deal-specific LLC or co-GP vehicle useful, provided the office accepts the added work of reviewing each opportunity.
The right structure is the one the office can understand, monitor, and administer over the full holding period. Clear economics reduce surprises. Clear authority reduces delays. Regular reporting gives the family a factual basis for deciding whether to add capital, change managers, or exit.
Collateral is one of the most important things that investors look for in a deal, right? what happens if this goes wrong? Do I get half of my money back? Some of my money back? Is there any protection at all?
FAQs
When does a co-GP structure make sense?
Use it when two parties contribute different capabilities and the agreement can assign authority, duties, economics, and removal rights clearly.
What is the main risk in gross revenue sharing?
Payments based on gross receipts may be owed even when the business has low margins, so the revenue definition and payment formula must be precise.
Sources
Part of Create a Multifamily Office: A Step-by-Step Guide. See also 3 Paths to Creating a Family Office.